EDITORIAL COMMENT: Budget encouraging, disappointing

FINANCE and Economic Development Minister, Patrick Chinamasa, last week gave a budget review statement that was both encouraging and disappointing.

It was encouraging in this respect: The Treasury chief acknowledged the unsustainable expenditure pattern that currently characterises the National Budget, and promised to undertake a number of measures to correct the situation.

Among the measures was the reduction of the size of the civil service as well as suspension of bonus awards this year. The bonus suspension, which would be partnered by a planned cut in salaries, will be a very painful measure by government in trying to address its financial predicament.

Apparently, Chinamasa indicated that the fiscus was under significant wage pressure, which resulted in revenues “persistently under-performing by about US$1 837 million, while expenditures were way above the target to the tune of US$308,4 million” during the half year period.

To demonstrate the effect of the wage bill on expenditure, Chinamasa indicated that employment costs alone took US$1 638 billion between January and June 2016, and this constituted 96,8 percent of total revenues.

There are several other measures government has promised to implement to reduce currently unsustainable expenditure levels. But there is need to ensure that government engages and consults its critical stakeholders, including its workers who will be directly affected by some of these measures.

But we also believe that the National Budget was also grossly disappointing — Chinamasa continues to run a budget deficit, which he anticipates to hit US$1 billion by the end of the year.

Already, he indicated that government had overrun its budget by over US$600 million.

Our current economic circumstances do not allow for such profligacy; there is very little stock of money in the economy to support such a budget deficit, which by our standards is very huge. Moreover, government, which has inevitably crowded out the private sector on the debt market, does not have the cash to repay its accumulating debts, and this may now explain its desperation to bring back the local currency in the form of bond notes to ensure that it pays back the debts it continues to accumulate on the domestic market.

During the inclusive government and under former finance minister Tendai Biti, government used to spend “what it gathered”. There was no room for deficits because the circumstances did not permit.

But Chinanasa has consistently and persistently run budget deficits, some of which are a result of clear profligacy by government.

Chinamasa admitted in his budget review statement that the growing deficit had “become a major threat to the stability of the financial sector and the overall economy”.

Clearly, it is also the reason why government is now pressing ahead with the planned re-introduction of the Zimbabwe dollar under the cover of so-called bond notes.

The greatest challenge for government would be to adopt austerity measures and ensure it sticks to its budget without raiding the banks.

There may also be need to reduce the tax burden on companies and individuals to encourage re-investment and spending.