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When it’s no longer possible to bury bad news:

Zimbabwe’s 2016 mid-term fiscal policy review

10/09/2016 00:00:00
by David Mutori
 
David Mutori writes in his personal capacity
 
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ZIMBABWE'S mid-term budget review was more about attempted spin than facts. Hidden in the cunningly presented information is a gapping budget deficit, an economy that is barely growing, no room for tax increases and no political will to cut expenditure. The key message: a minister unsure about his own role who chooses to tinker on the edges as the country runs out of money.

The pessimistic tone of the mid-term budget policy review was hard to conceal despite Minister of Finance Patrick Chinamasa’s best efforts. If anything, the minister actually did well to try and cover up the huge problems that the government is facing.

In summary, the government’s predicament is a bit like a household that thinks they are earning $500 a month but spend $510 thereby borrowing $10. During a review of household finances, the household realises that they are actually earning $450 a month and spending $550. As a ‘solution’, the family makes a decision to only reduce their expenditure to $540 a month and tries to congratulate itself for ‘restructuring’ its finances.

Readers should be forgiven for feeling a sense of deja-vu when the beleaguered minister announced that the government was planning to shed 25,000 jobs and suspend bonuses for 2 years. The last time that the minister announced similar measures, he was dressed down and humiliated by his boss who disowned the announcement and reversed everything in a move that can only be described as fiscal cowardice.

It is also known that the government has steadfastly refused to cleanse itself of its thousands of ghost workers who are suspected to be its ‘shock troops’ - ZANU PF youths. It is also important to note that the announced 25,000 redundancies are on the back of election promises to create 2 million jobs. The 25,000 redundancies become an admission that the government has failed 2,025,000 potential workers; jobs that it is getting rid of and those that it failed to create.

By focusing on the little action that the government is going to take to ‘reverse the its unstainable consumptive position’, Happiness Zengeni of the Herald tried to cover up the real bad news; the chasm between the money that the government collects and that which it spends. Zengeni also failed to clarify the fact and that the little action the government is planning will not get anywhere near solving the problems that Hon Chinamasa faces.



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According to its 2016 budget, the government of Zimbabwe had planned to collect $3.85b but spend $4b therefore borrowing the $150m shortfall. The reality for the first 6 months of the year has been a double edged sword; the government is not collecting as much money as it set out to do but spending much more than it intended. An annual revenue target of $3.85b suggests that the government should have at least collected $1.92b for the six months period to June 2016. The actual revenue collected has been reported as $1.69b – a shortfall of $235m for the first 6 months of the year.

The figures for expenditure show an even larger chasm. The government had planned to spend $2b for the period to June 2016 but it has actually spent $2.32b. This means that the government has already spent $320m above what it planned to spend for the first 6 months of the year.

It is reasonable to assume that the financial fortunes of the government are unlikely to improve in the 6 months to December 2016. Bearing in mind that the figures for revenue and expenditure only cover half of the financial year it is reasonable to assume that the gaps will double by the end of the financial year.

The failure to collect enough but spend even more would suggest a year end deficit of $1.25b ($150m planned deficit, $470m revenue shortfall and $620m overspends). It is very difficult to see how a country can survive running an annual deficit that is more than 35% of its revenue without any good Samaritan to bail it out

Although not announced in public, the figures above suggest that the government is already borrowing very heavily to finance the shortfall caused by its gluttonous spending appetite.

Recent announcements attributed to Chinamasa where he is quoted as saying that the government ‘may’ fail to pay its staff should be taken seriously; the minister knows he is fast approaching a dead end.

The minister’s recent attempts to open borrowing facilities must have been driven by his desperation to avert an impending implosion. Another strong hint of the problems that Zimbabwe faces was supposedly given by the Governor of the Reserve Bank of Zimbabwe John Mangudya who is quoted as saying that the 2008 dollarisation was a mistake.

Given the scale of the problem, one gets to see that the presented proposals to save a few million dollars here and there are far short of the drastic action that is required to solve Zimbabwe’s budget quagmire.

Zimbabwe does not have friends who can continue lending the country indefinitely or bail it out. History tells us that ZANU PF is unlikely to come up with a fiscal solution to the challenges.

Although none of us want to confront it, an explosive ‘ill-informed’ monetary policy announcement (such as re-introduction of a Zimbabwean currency) becomes a real possibility and could be imminent.

The 4th quarter of 2016 could see a self-induced cataclysmic monetary policy shift. Besides, it is still possible for the country’s CEO to humiliate his minister by reversing the meagre benefits of the tinkering exercise if and when the armed forces protest.

Tendai Biti who insisted that we should live within our means and ‘eat what we hunt’ and those who warned the ZANU PF government that they ‘cannot rig the economy’ may have the last laugh after all. In order to keep his boss happy, Hon. Chinamasa has to pretend that Zimbabwe can eat more than it hunts and keep a blind eye to the fact that the food will run out. The poor finance minister may even have to tell his boss that it is possible to rig the economy. The Zimbabwe conundrum rages on!

David Mutori (FCCA MBA MSc) believes that Zimbabweans underestimate their individual responsibilities and potential to determine their future. He writes in his personal capacity and can be contacted on mutorid@gmail.com.


 
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