Zimbabwe’s finance ministry made a bold budget presentation of $5,071 billion in anticipated revenues against a planned expenditure bill of $5,743 billion. The budget deficit is expected to ease to $672 million from the $1.7 billion recorded in 2017. The government expects the economy to grow by 4.5%, a figure much higher than the anticipated growth of 3.2% for Sub-Saharan Africa countries according to the World Bank 2018 projections.
By Victor Bharoma
Firming commodity prices and growing domestic demand will sustain growth in the region. South Africa is expected to grow by 1.1%, Angola by 1.6% and Nigeria by 2.5% in 2018. These three economies are largely the best performing economies in the region better than Zimbabwe.
Since 2014, Zimbabwe has been doing the obvious by setting a modest budget but overrun it by billions of dollars. In terms of government expenditure, 2018 may not be any different considering the impending elections, the expanding command agriculture, foreign currency constraints, the ballooning domestic and foreign debt obligations. Judging by last year’s budget overrun, the deficit for 2018 might be 45% above estimate which will take the deficit to about $1 billion. As with all the previous years, the civil service bill will chew at least $4.5 billion from the budgeted figure leaving only $500 million for capital expenditure. Capital expenditure has been the worst affected portion of our national budget. To close that gap, the government engages external financiers who always grab the opportunity and advance loans that have long term implications to the economy.
The most pertinent question for the treasury from a layman point of view is, why does the government live beyond its means? Is it not a case of consuming an elephant after slaughtering a goat? Clearly the lifestyle audit being touted for public officials should start with the government itself. In the last 5 years, Zimbabwe’s domestic debt has surged to over $6 billion, growing at an average of 0.8% of GDP each month. The government has been financing its domestic debt through the issuance of treasury bills (TBs). The move crowds out lending to the private sector, thereby closing domestic investment and growth. As a result, it creates a vicious cycle, where excessive government borrowing leads to poor performance of the private sector and diminished future tax revenues. The cycle can be very difficult to stop as each month the government has to prioritize debt obligations, while consuming from the same TBs that created the cycle initially. In 2017 the IMF warned Zimbabwe about the dangers of excessive government spending and the widening domestic debt.
In the aftermath of the world financial crisis, Greece faced a record debt crisis which was pushed by excessive government spending and fraudulent statistics. At its peak Greek debt levels had grown to over $457 billion while the country’s GDP was only $200 billion.
Greece become the first developed country to fail to make loan repayments to IMF and the World Bank. Though the country is still far from normalcy, austerity measures and bailout loans from the European Central Bank (ECB) have managed to stabilize the country after the tough phase that lasted for nearly 5 years from 2010 to 2015.
The budget presented by the Finance ministry struck all the right codes in cutting foreign travel expenditure, cutting the civil service wage bill, proposing privatization of ailing state entities that bleed the government millions each year and retiring civil servants above the retirement age. The budget had tones of austerity measures required to tame runaway government expenditure but implementing the reforms has proved extremely difficult for the treasury department. Key aspects that need government policy review include command agriculture and civil service realignment.
There is no doubt that command agriculture has been a success when you look at the yield statistics from strategic crops such as Maize, Wheat and Soya among others. However the program leaves the government with a bigger hole in domestic debt to solve more than the bill ordinarily incurred to import those commodities. To get the maximum benefits from such programs, there is need to increase production while minimizing risks by involving financial institutions. After all farming is a business and banks were setup to finance such projects. The scale of the project, crops targeted, farming regions, farmer groups and logistics may remain within the government policy but the disbursement of funds or inputs and repayment should be administered by the banks.
In addition, Zimbabwe’s civil service head count of over 550 000 is too bloated for a country our size. The major factor in civil service realignment should be the output from certain departments and entities that depend on government for survival without any meaningful contribution to government programs. This process is ongoing albeit at a snail pace and the 2019 budget is likely to be presented without implementation of 2018 reforms.
Taming government expenditure is always a difficult process and unpopular from a political point of view but the new dispensation has been lauded for fronting business and economic reforms ahead of politics. What is left is to walk the talk or bite the bullet as they say. In the long term, cutting government expenditure brings the much needed confidence in the economy, improves the economy’s competitiveness, reduces adverse effects of foreign borrowing as scarce foreign earnings can be channeled to the productive sector and it increases uptake of future financial instruments (TBs and Bonds) to uplift the economy.
Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or Skype: victor.bhoroma1.
