Govt sinks into deep fiscal crisis

Source: Govt sinks into deep fiscal crisis – The Zimbabwe Independent July 28, 2017

THE annual budget review presented by Finance minister Patrick Chinamasa last week has not only exposed government’s indiscipline in spending beyond its means, but also the lack of solutions in solving the deepening economic crisis.

By Kudzai Kuwaza

Chinamasa revealed government’s reckless spending spree in his statement, with President Robert Mugabe’s office leading the way, overspending by US$43 million, as its unsustainable budget deficit scaled almost US$1 billion in 2016.

This comes as Zimbabwe’s total debt, as at end December 2016, quickened to US$11,3 billion; with the external debt at US$7,3 billion, and domestic debt at US$4 billion.

The finance minister also revealed that government has overspent by more than US$900 million while having a revenue shortfall of US$347,8 million, which has forced Treasury to borrow US$1,4 billion on the domestic market. The borrowing has crowded out the private sector which needs credit to invest and create jobs.

Government spent US$4,9 billion under a US$4 billion national budget, hence a US$900 million deficit. It collected US$3,5 billion from taxes, reflecting an overall revenue shortfall of US$347,8 million.

Most ministries overspent, with the Ministry of Agriculture overshooting its budget by a staggering US$772 178 832, while the defence ministry overspent by US$88,2 million to US$446 319 801.

The Mines ministry, allocated US$5,9 million, spent US$119 million.

There was also US$134 million unbudgeted expenditure directed towards capitalising technically insolvent state-owned enterprises and parastatals. This is despite Chinamasa revealing in successive budget statements plans to privatise the state-owned enterprises which have bled the fiscus through mismanagement and corruption.

The parastatals earmarked for restructuring include the Agricultural and Rural Development Authority, Cold Storage Company, Grain Marketing Board, Air Zimbabwe, TelOne, Civil Aviation Authority of Zimbabwe, National Railways of Zimbabwe, Industrial Development Corporation of Zimbabwe, Zimbabwe National Water Authority and Zimbabwe Power Company.

However, given that parastatal restructuring has been on government’s agenda since the early 1990s when the Privatisation Agency of Zimbabwe was formed, doubts abound as to whether there will be any significant development in that direction.
International Monetary Fund (IMF) mission chief on Zimbabwe, Ana Lucia Coronel, recently expressed concern that growth in bond note discounts in the parallel sector would increase inflation, which will impact on the supply of certain goods and services.

Coronel said there would be a need for limiting the sources of financing, the deficit which requires going through fiscal adjustment. The Finance minister’s grim review comes at a time of worsening economic crisis characterised by a debilitating liquidity crunch, an acute cash shortage, declining investment inflows, company closures and substantive job losses.

The United Nations Conference on Trade and Development has revealed that foreign direct inflows into Zimbabwe have declined from US$545 million in 2014 to US$421 million in 2015 before further plunging to US$319 million last year.

Cash shortages continue to worsen with long winding queues at banks by depositors desperate to access their cash becoming commonplace. Such is the severity of the cash crisis that some banks are giving a daily cash limit of US$20 and mostly in 5, 10, 25 and 50 cent coins.

The carnage in the labour market continues with more than 800 workers losing their jobs in the first quarter of the year alone. At least 160 workers were laid off in the last month. National airline Air Zimbabwe recently retrenched 200 workers with the National Railways of Zimbabwe planning to lay off more than 1 000 workers, worsening the country’s unemployment rate.

Chinamasa was silent on these challenges in his statement, suggesting that the government is either reluctant or clueless on how to address them. He was also silent on government’s spending in the first half of 2017.

Chinamasa deviated from presenting a mid-term fiscal policy statement to providing a review of last year’s performance.

Commentators said this is probably because of how his proposals in last year’s mid-term fiscal policy statement — which included the closing down of some of the country’s embassies, retrenching civil servants, cutting the salaries of cabinet ministers and suspending civil servants’ bonuses — were rejected by Cabinet.

Despite Chinamasa’s promise to cut benefits to reduce expenditure in his statement, it remains to be seen whether he can achieve this or, like his previous proposals, also suffer a stillbirth.

The Finance minister grossly understated the budget deficit in his review statement, according to economist Eddie Cross, who also sits on Parliament’s Budget and Finance Committee and the Public Accounts Committee. “Chinamasa has got to try and put a positive spin,” Cross said. “He was not entirely honest. He understated the margin of domestic debt substantially.|”

Cross pointed out that Chinamasa had not divulged the full costs of the government’s Command Agriculture programme which is meant to boost agricultural production and reduce maize imports.

He said the budget overrun would jeopardise the government’s re-engagement with the IMF. “You can forget the IMF re-engagement with the budget which is so off kilter with what the IMF has come to accept,” Cross said.

The outlook remains dim, according to economist and Buy Zimbabwe executive Oswell Binha.

“The outlook remains gloomy as it hinges on the government’s ability to deal with its over expenditure,” Binha said.

“The major challenge is the inability of the government to deal with the fiscal deficit which is the root cause of cash shortages and the depletion of nostro accounts.

“A deficit of US$902 million is too huge and this is predominantly financed by overdrafts at the Reserve Bank practically implying borrowing from the private sector.”