Source: Patrick Chinamasa in tight corner | The Financial Gazette September 8, 2016
FINANCE Minister Patrick Chinamasa is expected to present his Mid Term Fiscal Policy review today as fears mount government is likely to introduce bond notes despite public disapproval.
The Mid Term Policy will be unveiled at around the same time it was given in 2014, far from the traditional July period.
The country has entered a critical phase in terms of economic stagnation, as seen through protests that have dogged Harare in the past few months.
Last week, police reacted by issuing a blanket ban on protests until September 16.
But investor confidence had already been badly hammered.
It would be interesting to see if Chinamasa had time to reflect on the disturbances and factored in measurers that will pacify the nation, which, clearly, has been losing patience after enduring over 15 years of hardships.
If the Minister does so, he would win the hearts of many.
The reality is however, that he has no fiscal space to bring smiles back on people’s faces.
Tax revenues have gone down significantly to a point where government is now even struggling to pay its employees.
Regardless, thousands of youths, who have been graduating from colleges and universities, only to be confronted by high unemployment and diminishing opportunities in Zimbabwe, are banking on him to deliver a well thought-out fiscal plan to turn around the economy.
Traditionally, President Robert Mugabe’s Cabinet ministers have used the fiscal policy review statement for “electioneering”.
Consequently, their blueprints have largely failed, resulting in the country’s economy sinking further and further.
As a result, over five million Zimbabweans have now fled the country while those that have chosen to remain behind are now resorting to protests to show their displeasure with government.
Generally, Chinamasa has been one of the hardworking ministers in President Mugabe’s government although he has been falling into the same trap as other State bureaucrats that glossed over the economic crisis.
He has been propagating the myth that the crisis was solely the result of an economic embargo slapped on the country by the West over 15 years ago, ignoring high-levels of corruption, fraud and economic mismanagement that have flourished in Zimbabwe.
He has also made the error of thinking that the economy would rebound on the back of an informal sector. This sector, which has been credited for driving growth in other countries, has its own fair share of weaknesses, including reluctance to pay taxes and serious undercapitalisation issues.
About 5,7 million people are estimated to be eking out a living from the informal sector.
While the acceptable path under the circumstances would be to pursue spending cuts, Chinamasa has failed previously to deal with profligacy in government, as seen through the Comptroller and Auditor General’s reports.
He has been hesitant to make decisive cuts in recurrent expenditure, the money that government uses to run its day to day affairs.
The civil service, at 500 000, remains relatively large compared to the size of the country’s economy. Its expenditure accounts for 80 percent of the national budget.
A bloated Cabinet has also been presenting serious challenges to public administration because the bigger the Executive, the higher the spending.
Government ministers are spending big on useless foreign trips, and enjoy the luxury of unnecessary top of the range Mercedes Benz and Range Rover models as well as lavish spending in holiday resorts, while the economy smoulders under their stewardship.
Ahead of today’s announcement, economists said protests over a worsening economic situation presented Chinamasa, who has been battling to pay civil servants in time due to dwindling revenues, with insurmountable challenges.
The Zimbabwe Revenue Authority (ZIMRA) says revenues for the second quarter were three percent below target.
Economists blame the economic woes on government’s failure to control its expenditure.
“There is little appetite to control expenditure, yet there is appetite to spend,” said Kipson Gundani, chief economist at Buy Zimbabwe Trust.
Chinamasa has been making frantic efforts to ensure Zimbabwe repays US$1,8 billion in arrears to the International Monetary Fund, the World Bank and the African Development Bank with the hope that this would allow Zimbabwe to receive new funding to support the economy and government’s budget.
The country has been failing to access external funding to finance its operations for 15 years, largely due to debt arrears.
The country’s external debt is currently at US$10 billion.
This is only part of the problem.
The country has at least 100 parastatals, more than half of them a burden to the tax payer, but authorities have been unwilling to dispose them.
On the investment front, there has been perennial uncertainty created by hostile and inconsistent policies.
Many investors are sitting on the fence, with their fears now compounded by the fact that the country could now slide into chaos due to the demonstrations.
New protests came a few months after enraged cross border traders demonstrated at the Beitbridge border post after government banned the importation of a number of basic food products.
The rioters torched a ZIMRA warehouse, protesting the inclusion of at least 40 basic commodities on a list of about 10 000 products that were affected by the ban.
“We need radical reforms,” said Prosper Chitambara, chief economist at the Labour and Economic Development Research Institute of Zimbabwe.
“Government is bloated. This is not in line with our small economy. Chinamasa must consider privatising parastatals. More than 40 of them are a drain to the fiscus. If they were declaring dividends, government’s position would be better,” Chitambara said.
Government is unlikely to implement measures that may make it unpopular, such as cutting the size of the civil service and selling loss-making State firms to private actors.
While this could be the case, Chitambara warned that procrastination would further harm the economy.
“We are in election mode, expenditure will go up. We are likely to see a widening fiscal deficit due to underperforming revenues this year but that has implication on the domestic debt, which ballooned after government took over the Reserve Bank of Zimbabwe debt. But there is no will and commitment to implement these fiscal reforms,” he said.
He was referring to a US$1,35 billion central bank debt taken over by government in 2013.
He said areas requiring urgent attention included reducing Zimbabwe’s missions abroad, and even reviewing the size of the legislature, at least for now.
Kingstone Kanyile, chief executive officer at Mtilikwe Financial Services, said Chinamasa’s recent global charm offensive to drum up support for his debt repayment plan was necessary.
But the country must not expect funding in the next 18 months.
The current situation, he said, would result in increased domestic borrowing by government.
“But this will crowd out the private sector,” said Kanyile, who predicted that Chinamasa would revise his 2016 budget downwards “because there is no way you can support it without budgetary support”.
“The ban on imports must be struck off, bond notes are not good for the economy,” he said.
The bond notes, which government said would be introduced to alleviate a cash crunch, have been seen as an attempt by government to bring back the Zimbabwe dollar, which was abandoned in 2009 due to a hyperinflationary crisis that rocked the local currency.
Activists have vowed to campaign against the bond notes, which President Mugabe has described as “surrogate currency”.
The fear is that if brought back, Zimbabwe’s crisis could hit the depths touched in 2008, when the domestic currency suffered its worst assault and the economy experienced widespread commodity shortages.
In 2008, Zimbabweans were at the crossroads, with many unable to buy food, send children to school, or find cash for transport to work.
The situation was saved by the adoption of a multiple currency system in 2009.
But the country is at the crossroads again, facing liquidity problems, an industrial catastrophe, painful deflation and stunted growth.
The current budget has no room for growth stimulating capital expenditure.
“We need to create fiscal space,” said Chitambara.
COMMENTS
The Tokoloshe thinks that it should and indeed will become a tighter corner for the wonderful, honest Patrick Anthony. He is truly a living treasure for the people of Zimbabwe – for now, at least.
As a result, over five million Zimbabweans have now fled the country while those that have chosen to remain behind are now resorting to protests to show their displeasure with government. Imagine if Zimbabwe was geographically placed where Libya is on the North African coast line. This would mean that over five million people would have left the country on boats to seek a better life in Europe. Five million Zimbabwean refugees hitting the shores of Italy would have created utter and irreversible chaos in Europe, it goes to show how little care the world has with regard to the Zimbabwean refugee crises compared to the attention the crises is receiving in Europe. The crises in Europe is a very serious threat to the survival of the EU with only one million refugees entering. What damage is the influx of five million people from Zimbabwe doing in a country like South Africa soon to create further xenophobia attacks for sure. The Europeans scream out for a solution to the problem – it is simple grow some balls and get rid of dictators like Mugabe, Assad etc.