Minister moves to arrest deficits 

Source: Minister moves to arrest deficits – The Zimbabwe Independent November 23, 2018


FINANCE minister Mthuli Ncube yesterday announced a cocktail of austerity measures to contain government’s unrestrained expenditure outlays and resultant fiscal deficit seen surging towards US$2,9 billion this year-end in a bid to extricate the country from a worsening fiscal crisis.

By Chris Muronzi

In his 2019 budget statement, Ncube seemed hesitant to take the bold decision to layoff civil servants, who consume 90% of government’s revenues, opting for low-hanging fruits — those already approaching retirement — and some 3 000 youth officers, as well as ghost workers.

Yet he also seemed intent on pacifying civil servants and awarded a 13th cheque to civil servants. Instead of foregoing a 13th cheque payment altogether as part of the austerity measures, Ncube paid the incentive based on actual basic salary. Government previously paid the bonus based on basic salary earnings plus housing and transport allowances.

The move will save US$75 million this year, he said. Last year, government incurred expenditure of US$174,6 million on bonuses. Among other measures, Ncube will rationalise the public service wage bill, reduce foreign service missions from 46 to 38, retire over 3 000 youth officers and reduce the amounts payable to civil servants in annual bonuses.

“Effective 1 January 2019, Government is cutting remuneration by 5% for Principal Directors’ grades and their equivalents up to Ministers and the Presidium. This is also extended to designated posts in State Owned Enterprises (CEOs, Executive Directors and equivalent grades), including Constitutional Commissions and grant aided institutions,” he said.

“A standardisation or alignment exercise in remuneration including benefits for Constitutional Commissions will also be undertaken to remove inequality and disparities.”

Ncube also said the move would see employment costs inclusive of pension benefits, medical insurance and National Social Security Authority contributions coming down from 89,6% of total revenues in 2017 to 60,6% in 2021. Under the new measures, government’s command agriculture programme was suspended.
This year alone, US$600 million was spent on the programme.

The agriculture programme has so far gobbled up US$2 billion to date. The strategy for reducing the budget deficit entails managing expenditures, while stimulating economic activity in order to broaden the revenue base for any future expenditures required for development, he said. Some of the measures entail strict management of the government vehicle fleet that will see top government officials such as ministers being entitled to fewer cars. He, however, said his efforts would be directed at mobilising and optimising revenues without compromising the viability at source.

Ncube still has to deal with Treasury Bill (TB) maturities of around US$2 billion next year.

Banks are holding on to billions in government paper, but Ncube says government will engage market players to restructure its obligations. But the move could affect banks’ liquidity positions.

“High fiscal deficits became entrenched largely due to expenditures committed outside the Budget framework through Treasury Bill issuances. Resultantly, Treasury Bill maturities in 2019 are estimated at US$2,2 billion, which is unsustainable in one year,” Ncube said. “In order to manage the maturities, Treasury is exploring options for restructuring this commitment, in consultations with market players.”

The Zimbabwe Asset Management Company, a special purpose vehicle created to absorb bad loans, was ordered to stop acquisitions of non-performing loans, adding he would issue TBs should the need to finance short-term cash-flow mismatches arise. But these would be done through a public auction system.

The central bank’s quasi-fiscal activities were also discontinued immediately.

“All Reserve Bank quasi-fiscal activities, which have ended up imposing extra budgetary commitments, hence worsening the financing gap, are being discontinued. Forthwith, public expenditures will be confined to the budgetary framework approved by Parliament,” he said.

Ncube also imposed a new limit of 5% in overdrafts of the total government revenues. This measure, Ncube said, was against a statutory limit of 20% of previous year revenues. Government has over the years been using the central bank to finance its budget overruns.

“Against a background of a structural imbalance in the composition of budget expenditure, wherein the wage bill accounts for a disproportionate share, re-balancing of expenditures is critical,” he said.

“The budget, therefore, emphasises on living within means by instilling fiscal discipline and rationalising expenditures in order to create additional financial capacity for funding developmental expenditures and enhancing delivery of public services.”

He said government would in January compel all civil servants to register biometrically to weed out ghost workers.
“The registration process will be rigorous and will involve capturing data on Letter of Appointment, Academic and Professional Qualifications, National Identification Documents, Employment Code Numbers, and Biometric Data,” he said.

An audit a few years ago found that government had more than 75 000 ghost workers on its payroll. The US$8,2 billion 2019 budget, Ncube said, would add impetus to the Transitional Stabilisation Programme (TSP) launched in October meant to foster macro and fiscal stabilisation in the wake of a huge currency volatility crisis and acute foreign currency shortages gripping Zimbabwe’s fragile economy.

“The 2019 National Budget constitutes the first macro-fiscal financial framework for implementing the Transitional Stabilisation Programme (TSP), which is an initial stepping stone towards realising Vision 2030. However, in view of capacity limitations under the Transitional Stabilisation Programme, the 2019 and subsequent budgets will have to make choices against high demands. There is an imperative to ‘live within our means’.

“Therefore, the 2019 Budget primarily targets macro-economic and fiscal stabilisation and implementation of quick-win flagship and high impact projects and programmes, which lay a solid foundation for private sector-led growth.

The desired growth should be strong, sustainable and shared, also maximising productivity and jobs creation. Within this, a culture of targeting output and service delivery, rather than inputs in revenue, should be developed,” Ncube noted.

At the heart of Zimbabwe’s economic problems is a unsustainable budget deficit of US$2,9 billion in 2018, excessive government borrowing from the Reserve Bank of Zimbabwe beyond the stipulated 20% threshold of revenue collected in the previous year and the unsustainable issuance of statutory paper, whose maturity next year is expected to soar to US$2,2 billion.