Government spending to intensify ahead of 2018 elections

By | June 15, 2017

Source: Government spending to intensify ahead of 2018 elections | The Financial Gazette June 15, 2017

PRESIDENT Robert Mugabe’s government overspent by US$183,2 million during the first quarter of this year, sending a clear signal it may not stick to its fiscal plan as the country prepares for decisive elections next year.

According to the latest Treasury Bulletin issued by Finance and Economic Development Minister, Patrick Chinamasa, last week, government’s revenue during the three months to March 31, 2017 amounted to US$869,2 million, against expenditure of US$1,052 billion during the same period.
This gave a deficit of US$183,2 million, 45,8 percent of the projected deficit of US$400 million for the entire year.

Last year, government’s budget deficit out-turn was at US$1,18 billion, far ahead of a US$150 million deficit that had been projected for the year.
For a government that has been known for profligacy rather than fiscal rectitude, the deficit is expected to become wider than last year due to election spending.

The country is scheduled to hold elections next year between July and August, with the ruling ZANU-PF party having already endorsed Mugabe, 93, as its candidate.

Mugabe is expected to face his long-time deputy, Joice Mujuru, who was sacked from the party in 2014 for allegedly plotting to unseat the long-time ruler, and Morgan Tsvangirai, the leader of the MDC party which formed a coalition government with ZANU-PF after a disputed presidential election in 2008.
There are talks for the opposition to field a single candidate against Mugabe, but a deal has not yet been reached.
The coalition government collapsed after ZANU-PF romped to an unexpected landslide victory in 2013 polls, which coincided with economic turbulence, marked by the current cash and foreign currency shortages that have disrupted most economic activities.

2009 and adopted a hard currency regime after ditching the defenceless domestic currency due to a hyper-inflationary crisis, the economy surged, registering GDP growth averaging seven percent, while inflation remained in the low single digits.
Government revenues more than doubled from 16 percent of GDP in 2009 to an estimated 36 percent of GDP in 2012, allowing the restoration of basic public services.

But that ended in 2013, with GDP growth decelerating from 10,5 percent in 2012 to 4,5 percent in 2013, largely due to election-year uncertainty and doubts over ZANU-PF’s capacity to turnaround the economy.
GDP expanded by three percent in 2014, and by 1,5 percent in 2015. Although there were fears the economy would contract last year, it clocked growth of 1,7 percent, against the background of a worsening liquidity crisis that forced banks to resort to cash withdrawal limits and the central bank to introduce bond notes, a domestic currency it said is backed by a US$200 million African Export and Import Bank facility.

Favourable rainfall this year, which resulted in good maize harvests, is likely to conceal government’s failure to superintendent the economy, with growth now expected to be higher than the previous year at over three percent.

In his Treasury Bulletin, Chinamasa said revenues for the quarter were at US$278 million in January and US$264,1 million in February before increasing to $327,1 million in March 2017, giving total first quarter collections of US$869,2 million, compared to US$808,4 million collected during the same period in 2016.

Total expenditures for the three months amounted to US$1,052 billion, with recurrent expenditures taking US$879,1 million, while capital expenditures and net lending amounted to US$173,3 million.
“The government has failed to achieve a fiscal balance since assuming control of the treasury in 2013,” said Jacob Mufume, spokesman for the People’s Democratic Party led by former finance minister in the coalition government, Tendai Biti.

Zimbabwe also recorded a budget deficit in 2012, after a surplus the previous year, in Biti’s final full year at Treasury.

Analysts criticise the government for running deficits, which are funded by domestic borrowing, which they say has crowded out the private sector.
Chinamasa said domestic credit had increased by 17,5 percent to U$7,92 billion in March 2017, from US$5,88 billion in March 2016.

“However, government continued to dominate in the market. Consequently, net claims to the central government increased by 40,2 percent to US$4,034 billion in March 2017. Credit to the private sector decreased by 0,3 percent from US$3,50 billion in March to US$3,49 billion March 2017,” said Chinamasa.
Albert Makochekanwa, a professor of economics at the University of Zimbabwe, said the dominance of government on the domestic debt market was “very bad”.

“It means production firms will be starved and will not be able to borrow, hence they will not be able to do investments, thus depriving real economic and production activities,” said Makochekanwa.
“We know that government borrows mostly to fund salaries and perks, and that is not productive in real terms,” he said.

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