Budget reflects economic decay

via Budget reflects economic decay – The Zimbabwe Independent November 27, 2015

FINANCE minister Patrick Chinamasa yesterday presented to parliment a static US$4 billion budget, showing the economy remains in the doldrums and raising the urgent need for full re-engagement with International Financial Institutions to secure new funding.

Comment

The budget only helped to further confirm the economy is still stuck in stagnation, while buffeted by a liquidity crunch, low production and poor aggregate demand, non-performing loans, antiquated plant and machinery and other numerous problems.

As a result, Chinamasa found himself without any fiscal space to manoeuvre as the economy shrinks and revenues dwindle.

From the virtually standstill US$4 billion 2016 budget, compared to the US$4,1 billion for 2015, the projected deficit of US$150 million to be funded from borrowings on the domestic market. He said the economy will grow by 2,7% in 2016, up from this year’s 1,5%. His projections have been consistently wrong though. Inflation is seen averaging -1,2% in 2016.

Budget expenditure for the period January to September 2015 amounted to US$3,297 billion, including US$400,9 million which went into the re-payment of some of the country’s loan obligations.

Although he announced civil service reforms, with anticipated annual savings of around US$170 million, the minister steered clear of drastic austerity measures. Government wants to reduce the wage bill from above 80% of revenues to below 40%, but will spend US$3,685 billion on recurrent expenditure and US$315 million on capital expenditure. Employment costs will gobble around US$3,191 billion.

Chinamasa’s budget reflects the fiscal crisis Treasury has been perpetually grappling with since the adoption of the multi-currency system in 2009. Besides, the 2016 budget is a clear admission on its own by government that its woolgathering economic blueprint, ZimAsset, which envisaged an average economic growth of 7% between 2013 and 2018, is a dismal failure.

The only silver lining though is that the budget showed Zimbabwe is slowly but surely shifting its diplomatic stance as it seeks to intensify re-engagement with the international community after its debt and arrears clearance strategy in Lima, Peru, last month.

Despite resistance from blinkered populists and political hardliners, Chinamasa has bravely sought to deepen re-engagement to push his external arrears clearance strategy to pay off US$1,8 billion overdue to multilateral creditors by June next year in a bid to break the US$10,8 billion debt vicious cycle. This is designed to secure at least US$2 billion in new funding to rescue the crumbling economy ravaged by recession, a liquidity crunch and deflation, among other chronic problems.

Indigenisation minister Patrick Zhuwao is also expected to soon revise the damaging empowerment policy which has kept investors at bay and triggered capital flight. The best option though is to repeal it.

To achieve sustainable economic recovery and growth, government needs investor-friendly policies. Government’s role in the market is to act as a facilitator to ensure a conducive business environment for the private sector — the engine of growth.