President Mnangagwa’s acid test

President Mnangagwa’s acid test

Source: President Mnangagwa’s acid test | Financial Gazette (News)

PRESIDENT Emmerson Mnangagwa’s new administration faces its first stern test when it presents the 2018 National Budget next week.

Tackling hostile investment laws, a growing current account deficit, a revenue draining civil service and a crippling bank note crisis are just the tip of what Mnangagwa is up against, going into 2018 as the economy fast deteriorates.

Acting Finance Minister, Patrick Chinamasa, presents the 2018 National Budget next week on the back of intensified economic turbulence, which Mnangagwa’s administration has to address if the new man at the helm is to entertain any hope of victory in next year’s elections.

The budget will be the first real test of Mnangagwa’s commitment to address 17 years of crisis, coming only two weeks after his shock rise to power, promising a basketful of positive changes, including a crackdown on rampant corruption and restoration of normalcy in the bloated civil service.

Under previous administrations, the civil service wage bill was gobbling 80 percent of fiscal revenues.
Out of every dollar received by the Zimbabwe Revenue Authority, 80 cents were paying government workers, with 20 cents going towards critical social commitments such as sanitation, roads, clinics and schools.

Chinamasa, who was Finance Minister until he was dropped in an October 9 reshuffle, returns to Parliament on Thursday to present a much anticipated fiscal statement.
The vexing puzzle that government has to fix is how to arrest dwindling tax revenues in order to align its budget with spending demands.

But at stake in next week’s budget would be the measures that Mnangagwa’s administration would unveil to address an unsustainable debt burden, which is now over US$13 billion.
The need to restore stability of the banking system has remained paramount, while dealing with a growing fiscal deficit and rebuild failing industries and arresting the rot in State enterprises has become urgent.

Ahead of next week’s highly anticipated spending plan, key business lobbies had demanded that Chinamasa deals with the “long overdue” privatisation of State firms to reduce pressure on the fiscus and stop leakages by adequately supporting the implementation of the auditor general (AG)’s reports, which have been swept under the carpet for many past years.

“We seem to be violating our own rules,” said researchers at the Confederation of Zimbabwe Industries (CZI)’s economics department in a note seen by The Financial Gazette this week.
“We have had multiple reports by the auditor general, but little movement on implementation of reports’ recommendations. Work by the AG has to be respected. The minister should respond and give feedback on findings and recommendations by the auditor general,” CZI said.

But how government plans to eliminate the budget deficit would be under the spotlight, given that since dollarisation, bureaucratic profligacy has seen consumptive spending average 112 percent of the country’s $14 billion gross domestic product (GDP).
Savings have been nil, and import cover was also zero.

Investment has averaged about 16 percent of GDP, which is enough to sustain growth of a maximum four percent per annum, according to industry statistics.

In a frank paper presented to Chinamasa in October, the Zimbabwe National Chamber of Commerce (ZNCC) said 90 percent of the increase in domestic spending had been deployed to consumption, such as senior civil servants’ bookings in expensive hotels, airlines, foreign travel and all terrain cars.
This has seen government’s consumptive spending trebling to $3,5 billion last year, from $900 million in 2009.

Mnangagwa needs the Civil Service Commission to cooperate in rooting out hundreds of ghost workers that have been kept on the wage bill to prop up ZANU-PF party’s political expediencies.
“The wage bill needs to be addressed as a matter of urgency and government needs to act on ghost workers,” ZNCC said in its note to Chinamasa.

Some economists fear that fiscal imbalances could lead to a real risk of a recurrence of hyperinflation, which reached 500 billion percent in 2008, before government moved to adopt the multicurrency system.

“We strongly recommend that the government overdraft with the RBZ should be eliminated, we also need to respect the statutory cap on overdraft (which is) 20 percent of previous year’s revenue,” say CZI researchers.On Monday, Mnangagwa read the riot act against laxity in government when he addressed permanent secretaries.
It was too early to measure him at the time.

But Zimbabweans in the coming week will be waiting to see if his government would act on his threats. In October CZI said 30 percent of the country’s manufacturing sector companies were on the brink of collapse due to a vexing foreign currency crisis and a pervasive lack of confidence that is hurting new investment.

Signals of hope had started to appear since Mnangagwa’s dramatic rise to power last week, with pockets of the financial system increasing the amount of money that depositors can withdraw per day.
Across the world, fund managers and investment advisors said they were hopeful of positive developments in Zimbabwe.

The London based Equities Development Limited (ED), which tracks counters quoted on the London Stock Exchange’s Alternative Investments Markets, said high risk factors associated with Mugabe’s regime were likely to ease.

“We view the end of the Mugabe regime as positive for the mining sector, as it will help to shrug off the heavy risk discount attached to Zimbabwe assets,” ED said.
Years of economic mismanagement have pushed 5,7 million people to the informal sector, into the absence of a stimuli.

Zimbabwe last received international support in 2009, and its budget has not been supported by offshore funding since then.

“The story goes back to the structure of the budget,” says Kingstone Kanyile, chief executive officer at Mtilikwe Financial Services.

“He must minimise on recurrent expenditure and maximise social and capital expenditure. You cannot take US$0,80 from every dollar you have and fund recurrent expenditure and leave US$0,20 to fund capital expenditure as well as other expenditures. It can’t just work,” he said.

During the 2015 World Bank and International Monitary Fund spring meetings in Lima, Peru, Chinamasa unveiled a plan to repay the debt, now estimated at US$11,6 billion.

The plan is off track, explaining why the country risk has remained high, forcing investors to sit on the fence.

COMMENTS

WORDPRESS: 2
  • comment-avatar
    Fallenz 2 months

    This whole, entire thing was to save ZANU-PF and “preserve its ideals and policies”…? Good grief! Are you people insane!!! Those “ideals and policies” are exactly what put Zim in the bottom of the dung pit. Those “policies and ideals” include mainly maintaining power at all costs, rigged elections, politicizing the policia and judiciary, silencing free press, disappearing democratic activists, making billionaires out of a few of the elite at the expense of the people, allowing the infrastructure to go to ruin… THAT is what this whole mess is about..?

    The inmates are still in charge of the asylum..!

  • comment-avatar

    Correction – Zimbabwe’s inflation rate which peaked in 2008 was 89.7 sextillion per cent – forget about the Zimbabwe economists who said it was 500 per cent above – that was the figure in early 2008.
    Please get your facts right Fingaz and try and be a proper economic paper with correct stories and figures!