Business leaders have expressed doubts that government’s
fiscal indiscipline will end any time soon, warning the persistent build-up in
the imbalances will dampen Zimbabwe’s economic prospects over the medium term.
The fiscal deficit surged to 14,7% of gross domestic
product (GDP) in 2017 from 8,75% in 2016 and 2,4% in 2015, according to
Treasury’s consolidated statement of financial performance for the period ended
December 31, 2017.
Government breached its own commitment to fiscal prudence
over the 2017 fiscal year, closing the year with a 59% budget overrun instead,
driven by unbudgeted recurrent expenditures and some off-budget capital
outlays.
Finance minister Patrick Chinamasa had vowed that
government would cut the ratio of budget deficit to GDP and gradually move it
back within the bounds of international best practices of no more than 2,5% of
the GDP.
A mid-year fiscal policy review, expected soon after a new
government is sworn in when the election decision is finally made, is likely to
show an upward trend in the deficit margin amid limited deficit financing
options.
Zimbabwe National Chamber of Commerce (ZNCC) CEO
Christopher Mugaga said the next Finance minister was unlikely to return
treasury to fiscal prudence due to legacy issues.
“Definitely, the new minister of Finance might not
necessarily reinvent the wheel in the mid-year fiscal policy,” he said.
“There is already a government with an appetite to eat what
it hasnot produced.
“Under normal circumstances, the minister must listen to
advice and raise the flag regarding spending patterns.
“But the problem is that the Finance minister may not have
enough space to manoeuvre beyond party lines given that the ruling party has a
two-thirds majority in Parliament.”
The fiscal outlook suggests that the budget deficit is
likely to keep growing following recent adjustments to civil servants’ wages
just before the July 30 elections.
Unless revenue rises substantially, which is highly
unlikely given the dire state of the economy, employment costs are likely to
claim an increased share of the fiscal income.
Since dollarisation in 2009, government has spent no less
than 70% of what it earns on recurrent expenditure, mostly comprising wages,
pensions, allowances and other operating costs.
Chinamasa’s calls for salary cuts, retrenchments and
suspension of bonuses have in the past been met with hostility.
A raft of measures to tame expenditure introduced in the
current national budget, including a reduction in government allowances and
foreign travels, will not be enough to reduce the deficit margin unless revenue
grows substantially higher than the increase in expenses.
Mugaga said reports of revenue growth by the Zimbabwe
Revenue Authority (Zimra) created the illusion of an improvement in the
national purse, given recent and current trends in inflation.
“The fiscal policy statement must look at measures to grow
revenue in the country and not take solace from the figures coming from Zimra
suggesting a growth in revenue collections,” he said.
“In the real sense, there is no growth to talk about. The
figure is inflationary because it is in RTGS terms. If you put it in real money
terms, you would find that there’s no growth at all.”
Confederation of Zimbabwe Industry president Sifelani
Jabangwe also raised concerns over government’s fiscal performance and called
for a number of reforms in the mid-year fiscal policy.
Over the last two fiscal years, government has been funding
its operations through domestic debt acquired through treasury bills and an
overdraft facility with the central bank.
“Treasury bills have been issued to cover the debt which
resulted in 2017,” Jabangwe said.
“If it was for the purpose of restructuring domestic debt
and for financing loans taken under Zamco (Zimbabwe Asset Management
Corporation) and other debts, we would say at least that is for a good reason.
“But, for the other budget over-runs, we are saying they
need to be managed. Government needs to live within its means.”
He said Zimbabwe’s budget deficits were mainly caused by
financial indiscipline.
“All governments have deficits, but the reason why ours is
so high in Africa is because of indiscipline. We are one of five countries in
Africa that are not given budgetary support because of how we are being
perceived from out there,” Jabangwe said.
“But, the challenge is that we need to live within our
means. What is also equally important is to find out how these budget deficits
are then funded so that they are not financed in a way that decreases the
amount of cash in circulation.
“It is one of the reasons why there’s a huge mismatch
between RTGS transfers and actual United States dollars in circulation.
“I think the impact of growing budget deficits is seen in
inflation, particularly, in the movement of the black market rate.” Standard
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