By Pepukai Chivore
When the Government enacts a budget, citizens expect it to function as a comprehensive roadmap that guides funds toward effective delivery of public services and progress on sustainable development. In the Zimbabwean context, successive budgets should steer the country towards attainment of Vision 2030.
It does not need special fiscal policy training to observe that the Government does not always collect or spend money according to plan. It is also unquestionable that if the budget veers off course, concerns around the causes and the consequences cannot be avoided. Moreover, repeated deviations from the promised roadmap can diminish public confidence in the stewardship of resources by the government and can create mistrust around its commitments.
According to the International Budget Partnership (IBP), budget credibility describes the “ability of governments to accurately and consistently meet their expenditure and revenue targets”. IBP contends that at its core, budget credibility is about upholding government commitments and seeks to understand why states deviate from these commitments. When budgets are not implemented as planned, spending priorities can shift, deficits may exceed projections, and critical services may be compromised in addition to eroding public trust if governments consistently deviate from their budgets.
Before we delve much into the subject of budget credibility, I should hasten to indicate that sound fiscal management is the bedrock of socioeconomic development. As such, the development efforts of a government are directly linked to the availability and efficient utilisation of its fiscal resources in a well-planned and structured way. The Constitution of Zimbabwe, in Chapter 16, makes a number of provisions which impact on Public Finance Management (PFM).
Government, in the First National Development Strategy (NDS1 2021-2025) under the Inclusive Growth and Macro-Stability pillar, undertook to adhere to the Budget and Public Finance Management Act rules. The undertaking was made against a background of lack of budget credibility in the recent past. Ministries, Departments and Agencies (MDAs) have raised concern on opaque financing while their reports indicate repeated spending in excess of appropriations which has severely weakened budget credibility.
The Auditor-General has consistently reported several misdemeanours including unauthorised expenditure, budget overruns, delays or non-delivery of goods and services paid for, accumulation of arrears by MDAs as well as commitments and payments incurred outside the Public Financial Management System. This implies that fiscal discipline needs to be entrenched in MDAs to ensure perennial expenditure overruns are contained in order to anchor fiscal consolidation. In addition, it is also important for the government to make realistic assumptions on major expenditure pressure areas such as employment costs and agriculture input support programmes that have driven the expenditure overruns over the years.
There have been various attempts to measure budget credibility, particularly by the Public Expenditure and Financial Accountability (PEFA) programme and the International Monetary Fund’s Fiscal Transparency Code and Fiscal Transparency Evaluations. This measurement is part of tracking and monitoring SDG 16.6.1 whose indicator is “Primary government expenditures as a proportion of original approved budget, by sector (or by budget codes or similar”
How has Zimbabwe fared on the budget credibility indicator? The 2021 budget is targeting revenues amounting to ZW$390,8 billion (US$4,5 billion) with expenditures of ZW$421,6 billion (US$4,9 billion) giving a deficit of ZW$30,8 billion (US$359 million) (1,3% of GDP). The Mid-Term Fiscal Policy Review Statement recently presented in Parliament revealed that cumulative revenue collections for the period January to June 2021 amounted to ZW$198,2 billion (US$2,3 billion) against a projection of ZW$182,1 billion (US$2,1 billion), resulting in a positive variance of ZW$16 billion (US$186,4 million) or 8,8%. Expenditures, on the other hand, stood at ZW$197,6 billion (US$2,3 billion) against a target of ZW$189,8 billion, (US$2,2 billion) giving a variance of ZW$7,8 billion (US$91 million).
The absence of the supplementary budget, for the second-year running, despite the glaring need for such given the inflationary environment is of concern. Although on average utilisation has been 41%, there is widespread imbalance in the utilisation. It is no secret that the ZW$$6,8 billion (US$79,2 million) unauthorised expenditure in fiscal year 2019 highlighted in the Auditor-General report was largely on account of the failure to acknowledge, mid-year, the need for a supplementary budget.
The 41% average utilisation points to imbalanced releases rather than the failure of the ministries to absorb. The ministries of Industry and Commerce, Information Communication Technology and Courier Services as well as National Housing and Social Amenities had utilised only 9% of their budget by 30 June 2020, while the Audit Office utilised only 8% of the allocated budget.
However, the Ministry of Lands, Agriculture, Water, Fisheries and Rural Resettlement had already used about 67% of allocated resources by June 30, 2021, Office of the President and Cabinet 57%, and the Ministry of Energy and Power Development 65%. According to parliamentarians, quarterly performance reports they have received from ministries attribute below par performance to such erratic and unpredictable releases.
In 2020, Treasury reported that revenues reached ZW$183 billion (US$2,1 billion) against a budget of ZW$58,6 billion (US$682,9 million) while expenditures amounted to ZW$162,4 billion (US$1,9 billion) against a budget of ZW$63,6 billion (US$741,2 million) to give a budget surplus of ZW$20,6 billion (US$240 million). The Covid-19 pandemic impacted on revenue collections whilst also increasing expenditure demands.
The World Bank, in its 2018 PEFA report on Zimbabwe has revealed that the variance between the approved budget and the reported outturn is significant, with deviations ranging from underperformance of 54% to overperformance of 492% for the period 2015 to 2017.
The deviations are way above the international standards under the PEFA framework which provides for ±5% variance for a credible budget. Significant over expenditures were found to be prominent in the agriculture sector, with the outturn reaching nearly five times the approved budget for 2016 and 2017. The outlays for social protection were also reported to have underperformed for three consecutive years reflecting challenges in budget utilisation or non-disbursement of resources by the Treasury.
The Auditor-General special report on the Basic Education Assistance Module (Beam) indicates that from 2012-2014, Beam was under-executed by more than 30%, impacting the number of children who could be served by the programme. The 2015 audit report also revealed that funds meant for Beam’s administrative costs were diverted to buy food hampers for the Ministry of Public Service, Labour and Social Welfare’s staff.
The above cases point to the need to seriously consider budget credibility. The attention to credibility at the global level by PEFA and others, as well as at local level, as wished for in NDS1, should remind policy makers of two key issues pertaining to budget credibility which warrant greater attention: the impact of budget deviations on citizens and services, and how governments justify budget deviations and are held accountable for them.
Budget deviations sometimes can be unavoidable as they may result from external economic shocks, or unforeseen circumstances like drought, floods, cyclone or pandemics. Whatever the cause, the lack of budget credibility has real human costs. The Cyclone Idai induced budget overruns have had serious adverse effects on social service delivery especially health and education outcomes. There is therefore need for Government to explain and justify such deviations, as well as take corrective measures to minimise the adverse impact on budget outcomes. Without such explanations, stakeholders can only speculate on the reasons why governments deviated from their original budgets which can erode public trust.
Written explanations, much like published financial data, can allow for a more robust and evidence-based dialogue between governments and citizens.
Most budget implementation reports, independent evaluation reports, and sector policy documents contain no reasons to explain the budget deviations. While there are no universally accepted standards about the format of these reports, the International Budget Partnership (IBP) in 2011 released a helpful set of guidelines for budget implementation reports among other budget documents.
These guidelines advocate for comprehensive budget credibility data with the following key issues:
- The amount of revenue and expenditure (either year-to-date or year-end);
- A comparison with the forecast amounts of revenue and expenditures for the same period;
- In-year adjustments to the original forecast shown separately;
- If a significant divergence between actual and forecast amounts occurs, an explanation should be made, ideally showing the degree to which, these changes are due to policy, problems in implementation, or changes in underlying economic conditions; and,
- Expenditures classified by major administrative units (ministries, departments, and agencies), and by economic and functional categories.
These recommendations emphasise the importance of presenting planned vs actual budget data and explaining the factors behind significant deviations. The social accountability framework, which the Government has adopted, requires the duty bearers (Government) to provide a detailed account to the Principals (citizens) of how their government collected revenue, spent money, and incurred debt within a given time period.
- Chivore is an economist based in Harare. He is an expert in Public Finance Management who writes in his individual capacity. — email@example.com. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe. — firstname.lastname@example.org and mobile:+263 772 382 852.