Biti warns of economic collapse

via Biti warns of economic collapse | The Zimbabwean 24 September 2014

It will take between six months and a year before Zimbabwe is in an acute economic crisis similar to the one experienced in 2007-2008, says former Finance Minister Tendai Biti.

In a wide-ranging interview this week, Biti told The Zimbabwean that the Cabinet put in place after last year’s elections that Zanu (PF) claimed to have won was incompetent.

He was in charge of fiscal policy during the Government of National Unity (GNU) between March 2009 and July 2013 when the economy made modest gains after a lengthy period of hyperinflation, widespread shortages and a steep decline in industrial production. 2008 marked the height of the crisis and forced Zanu (PF) to the negotiating table.

“This clueless government will fumble and tumble for six months and there will hardly be any economy to talk about after that. At most, it will take 12 months before we get stuck at the bottom of the economic trough and it will be very, very difficult to pull out,” he said.

“Those running the economy now lack competence. They don’t have a single idea on how to fix fiscal issues and they are employing feja feja (street gambling) tactics because they don’t have the sense of doing it properly. The current economy is couched in residues of the GNU,” Biti said.

He said government would soon fail to pay civil service salaries and shop shelves would become empty as most of the surviving industries closed down and pushed up unemployment – currently independently estimated at more than 80 percent.

The former finance minister bemoaned the increasing shrinkage of the economy. “We are now in an economic depression and have graduated from a recession. When an economy recedes for more than two successive quarters, it gets into a depression. This is what we have seen happening in the post-2013 election period,” said Biti.

In 2011, Zimbabwe became the fastest growing economy in the world when it recorded 11.9 percent economic growth. In 2012 the figure dropped to 10.7 percent and then plunged to 4.3 percent in 2013.

The new Finance Minister, Patrick Chinamasa, projected a 6.1 percent growth in his 2014 national budget but revised that to 3.1 in his recent Mid-Term Fiscal Policy Review. Biti forecast that in reality it would be around 1.5 percent.

He described Chinamasa as ignorant of the basic principles of economics and accused him of adopting counterproductive measures.

Recently, Biti’s successor introduced a raft of taxes in his mid-term fiscal policy review as a way of boosting revenue collection at a time government coffers are almost dry. His adopted higher import duty on numerous commodities and announced more tax on fuel, a move that is already driving price increases.

The new measures, Biti said, would discourage expenditure and shrink the economy further.

“When operating in an economy such as ours, you need to develop a matrix of spending. More taxation collapses that crucial expenditure and this is what Chinamasa, unbelievably, has done through his new measures.

“What it means is that less and less people will be shopping or crossing the border to import. The retail and industrial sectors will feel the pinch as sales will go down drastically and they will fold. In effect, there will be less revenue generated through taxation such as VAT (value added tax), excise and customs duty, PAYE (pay as you earn), and corporate tax will fall. This is killing the goose that lays the golden egg,” said Biti.

He further accused Chinamasa of “clumsiness” in the mid-term fiscal policy, in which he indicated that there would be no cuts in budgetary expenditure yet acknowledged that there would be almost a further billion dollars needed to service debts and fund other government obligations.

“Where is he going to get an extra $1 billion? Remember, even the constitution obligates the state to ensure there is money to fund the budget,” said Biti. “The problem with Mugabe and his government is that they think that money grows on trees. There is nothing political about what they are doing. It’s plain daftness. They lack the necessary technical expertise and that is why I am saying there must be a change of government before we revert to being hunter-gatherers.”

He warned that consumers and corporate entities would resist the new taxation system because it lacked legitimacy and they regarded the current government as too compromised to be in charge of the economy.

“The economy is cruel. You can’t bomb it. You can’t put make-up on it. Very soon, the government of Mugabe will realise that it has lost its direction and the people completely,” he said.

He said there was need for the government to re-engage the west alongside eastern governments and demonstrate a willingness to be democratic in order to attract foreign direct investment.

Biti said the economic crisis facing the nation was due to a “rare and unusual” combination of issues, which included bad governance, a weak opposition, disintegrating civil society, a poorly performing judiciary and a disintegrating industry.

President Mugabe (90), he said, was a cruel man who insisted on ruling over a country in chaos despite his advanced age and failure and must “be charged with treason”.