Overspending destroying Zim economy - Zimbabwe Situation

Overspending destroying Zim economy

via Overspending destroying Zim economy | The Financial Gazette by Maggie Mzumara 29 Jan 2014

THE government is guilty of it. So are some parastatals and quasi State entities such as the Zimbabwe Broadcasting Corporation (ZBC) and the Public Service Medical Aid Society (PSMAS), among others.The ruling party itself is borrowing to finance some of its operations and programmes.
Spending much more than they have, yet barely surviving under the yoke of debt!
A cancerous culture of spending resources which one does not have has taken root in government and also reared its ugly head in some of the country’s institutions and companies in a practice referred to as deficit budgeting.

With resources (and liquidity) being a recurrent challenge in the country for the past few years, government and other entities have found themselves with less revenue to meet their expenditure needs.

Yet instead of effectively reining in and streamlining costs, the tendency has been to keep expenditure as high as before, if not higher, and then end up with mounting deficit in the budget as payments far outweigh receipts.
Last year, government incurred US$500 million in unauthorised expenditure by some of its ministries and departments.
ZBC which rakes in monthly revenue of US$275 000 has an expenditure bill of US$2,3 million of which US$1,6 million is going towards salaries.

While the revenue and expenditure figures for PSMAS were not available by the time of going to print, it is quite clear that the society is living beyond its means.
Reports indicate that PSMAS has unpaid debts amounting to US$38 million and yet it has a wage bill of US$33 million a year which translate to about US$2,2 million a month.
“Yet at the end of the day that deficit must be financed,” said economist and textbook author Mac Mzumara. “Only large economies like the United States and others can afford to roll-over a budget deficit from one year to the other without feeling any pinch. For small economies like Zimbabwe, this cannot be done without destabilising the economy.”
According to Mzumara, instability created will include unemployment, non-productivity, inflation and the crowding out of investment, among others.
With no balance of payments support extended to finance the discrepancy in the budget, Zimbabwe has found itself with a glaring deficit that continues to bloat on, much to the detriment of the economy.

The country’s consumption patterns are equally worrying. The country is importing far more than it exports, hence creating a huge trade deficit.
“For every US$1 coming into the country, US$4 is going out,” said Tendai Biti, formerly minister of finance in the ended government of national unity.
“We are eating what we are not producing,” Biti said at a recent press briefing.
With its own resources almost non-existent, what with the Zimbabwe Revenue Authority failing to meets it targets once too many times, State coffers remain highly depleted.
With many of its items being funded on loans, the country is over borrowed. Current statistics from the Ministry of Finance and Economic Planning show  that Zimbabwe’s ratio of debt to gross domestic product is 49 percent.
When government is operating in a deficit mode, there are two ways to finance the gap. The first is to borrow and the second would be to raise taxes. Both of which have negative impacts.
When government borrows from the market, especially a market with liquidity challenges like Zimbabwe, it deprives private companies (or even individuals) who may have needed the available little cash to invest in some capital equipment or other ventures that may generate revenue or income.
And when government raises taxes to finance its deficit, this has implications on the amount of disposable income people have and, as such, investment, which is a function of savings, will be negatively affected as there will be a resulting reduction in the two.
“In an era of deficit budgeting, a budget is worthless,” Biti said, adding that is it “criminal” for government to continue operating in the way it is.
The major challenge that government and other affected entities are facing is that they borrow money for consumption, not for investment, and such loans are viewed as unproductive.
“The greatest risk that we have, not just in Zimbabwe, but in developing countries is that we are highly consumptive. Our budgets go into recurrent expenditure leaving very little or nothing for savings or investment,” said economist, Prosper Chitambara.

And yet for growth, real growth to occur, savings and investment are critical.
According to Chitambara, compared to other countries Zimbabwe’s savings to Gross Domestic Product (GDP) ratio is very low. While the savings to GDP ratio for China, which is considered one of the highest in the world is 40 percent of the GDP, between 2009 to 2012 savings for Zimbabwe were minus five percent of the GDP.
“We have in fact been dis-saving,” Chitambara said, adding that savings could only significantly improve with confidence in the financial system.
“Right now there is no incentive to save because interest rates are very low,” Chitambara said.

Be that as it may, Biti insists that government should never have abandoned cash budgeting which prevailed during the inclusive government. It may not have been the best but Biti says, “ at least we were eating that which we killed.”



  • comment-avatar
    John Thomas 4 years

    This is a strange article. Headline sounds ok, though it is not news. 4 dollars going out for every 1 coming in? This would only be possible if we were printing US dollars. So an obvious lie.

  • comment-avatar
    godfrey 4 years

    John if you dont understand plz ask. For every dollar Zim exports, 4 dollars is spend on imports. whts so difficult to understand with that. If you want to know how this is possible, just ask. The 3 dollars is made up as follows, remittance 60%, FDI 20%, NGO 10%, Credit lines 5%, grants and developmental aid 5%. Maybe now you know.

  • comment-avatar

    Not much time left now.!!