Source: Business calls for radical budget | The Financial Gazette December 7, 2017
FINANCE Minister Patrick Chinamasa will today present the 2018 National Budget in Parliament with business urging the minister to “break with the past and present a transformative” budget statement.
Chinamasa, whose budgets over the past four years have been hobbled by financial constraints and lack of policy latitude under former President Robert Mugabe, presents the 2018 fiscal plan under heightened expectations brought about by the unexpected ouster of the veteran ruler on November 21.
The Finance Minister has won plaudits for his pragmatism, particularly from international financiers, but has also been criticised for the explosion in government spending, which has seen the budget widen significantly over the past three years.
However, Chinamasa’s plans to cut government spending were frustrated by Mugabe’s populist expansionary policy stance.
Zimbabwe’s new leader, Emmerson Mnangagwa has previously served as finance minister and has promised to prioritise job creation as well as reforms and spending cuts.
Chinamasa is expected to address issues that impinge on business growth and economic stabilisation.
“Chinamasa should start implementing the various reforms and austerity measures aimed at cutting government expenditure policies that he was initiating in the past, but was stopped each time,” veteran economist John Robertson said.
In 2015 and 2016 Chinamasa proposed to suspend civil service bonuses for two years, cut State jobs by 25 000 and close some embassies in a move aimed at saving the cash-strapped government at least $335 million annually.
However, on both occasions Chinamasa was publicly rebuked by Mugabe and was ordered to reverse the austerity measures and find the money instead.
Economic analysts said it was Chinamasa’s decision to weed out ghost workers and streamline the civil service wage bill that resulted in his fallout with the populist Mugabe who fired him from Treasury in October, during the former president’s frenetic last weeks in power.
Zimbabwe is currently struggling with an excessive public sector wage bill which gobbles more than 90 cents of every dollar the government collects.
Robertson further indicated that the Treasury boss should find ways to increase the number of taxpayers and not increase taxes on the already burdened citizens.
“The minister should also make deliberate intentions to attract investment, address unemployment and poverty as soon as possible or else it would be difficult for the country to make any progress,” he said.
The non-partisan Parliamentary Budget Office said it would be prudent for the Finance Minister to expeditiously deal with the country’s $13 billion debt, which is an albatross to economic recovery.
“Zimbabwe has been in debt distress for a long time. As at March 31, 2017, the country’s public debt stood at $11,6 billion or 82 percent of gross domestic product (GDP), of which $7,5 billion or 53 percentof GDP is external debt while $4,3 billion, representing — 30 percent of GDP — is domestic debt.
“Of the $7,5 billion external debt, $5,2 billion is in arrears. The external debt of the country has increased in the second quarter due to interest payments. Domestic debt has also increased due to the continued issuance of treasury bonds to finance government expenditure. This leaves the country debt to a figure above $13 billion,” the PBO said.
Government has been increasing its reliance on the domestic market to finance the budget deficit and this explains why a large outlay of Treasury Bills (TBs) worth $2,5 billion, are currently on the market.
The Parliamentary Budget Office noted that the stock of public debt is violating provisions of the Debt Management Act which provides that outstanding government debt as a ratio of GDP should not exceed 70 percent at the end of any fiscal year.
“Moreover, the country runs the risk of defaulting as the deficit widens thus putting banks at a precarious position,” the Parliament unit said.
The Confederation of Zimbabwe Industries said there was need to restore a balanced budget so that the country does not eat into the future.
“The most powerful, most rapid, most effective short-term measure that we can take is to move back to a strict cash budgeting framework supported by social dialogue to obtain agreed cuts in the cost of employment. In particular we recommend that ministries are forbidden from accruing liabilities unless cash funding is in place,” the industrial body said in its submissions on the 2018 budget.
“The fiscal deficit is the root cause of the economic imbalances that we are facing. The fact is that the underlying fiscal imbalances that lead to hyperinflation remain and there is a real risk of a recurrence,” CZI said.
CZI added: “We strongly recommend that the government overdraft with the RBZ should be eliminated and replaced by appropriate instruments that formally define government’s debt to the banking sector in a planned manner to manage the liquidity.
“We also need to respect the statutory cap on overdraft – the 20 percent of previous year’s revenue and also the RBZ should not buy any TBs or any other form of quasi-fiscal instruments. We recommend the creation of a fiscal anchor enshrined in law which will stop government and respective arms from overspending.”
The Sifelani Jabangwe-led business association also indicated that Chinamasa must focus on the build operate and transfer schemes and public private partnerships, which are crucial in reducing pressure on the fiscus.
“We recommend that the focus is on the most loss making parastatals and that we take an aggressive approach to this to ensure that we realise quick wins. We recommend implementation of findings of studies already done on the various parastatals. For example, the NRZ deal — this has been long overdue and its importance to industry cannot be overemphasised. ZISCO is another deal that has taken too long and needs urgent attention — the Beitbridge-chirundu highway project — may the Honourable Minister presenton progress on such projects,” CZI added.
Policy consistency, coherence
The industry mother body also noted that there was need for policy certainty, consistency, coherence and the creation of an enabling environment for business development.
“Based on our 2016 manufacturing sector survey, most respondents felt that currently, over and above the inconsistency, there also were too many restrictive policies and the economy needs major changes and business friendly environment.
“There is need to ensure consistency and clarity of key policies, particularly indigenisation and other policies. We seem to be violating our own rules.
For example, we’ve had multiple reports by the Auditor General, but little movement on implementation of reports’ recommendations. Work by the Auditor General has to be respected. The minister should respond and give feedback on findings and recommendations by the Auditor General,” CZI said. email@example.com