Zimbabwe is caught in a Catch-22 situation: the government needs money to change its methods of governance, but western governments demand to see improvements in governance before they will offer funding writes BRIAN MACGARRY. On the formation of the inclusive government in February, the state coffers were empty and very leaky. Finance Minister Biti succeeded in getting some donors, such as the Australian government, to pay for a part of the rural education and health services. Bank accounts were being raided by RBZ, so government business had to be done in cash. At least, that should make it more difficult to run into further debts.
By mid-May the Finance Ministry’s careful planning for the future of Zimbabwe was reportedly adding more fuel to the fire of animosity between the MDC and Zanu (PF). The Ministry struggled to secure direct cash investment in the government. Donor countries demanded to see real change in Zimbabwe before investing, and have held back funds in the face of ongoing violations of the Global Political Agreement. So far, only credit line pledges to support the private sector have been made, while international donor governments have only funnelled cash directly to aid groups battling the humanitarian crisis.
Bitis new campaign
Biti launched a new campaign to mobilise donor funds through structures that are not part of the government, directly and in cash, thus avoiding the risk of sticky Zanu fingers getting on the money. The Finance Minister met in the first week of May with donors to discuss creating a Multi Donor Trust Fund to mobilise donor aid under the ‘Humanitarian Plus’ initiative.
A more difficult problem was presented by the inflated central and local government payrolls. A full civil service audit has still not been completed by June 2010.
Civil servants have since March 2009 been receiving monthly allowances of US $100 across the board, a factor that has also contributed to low receipts from PAYE as the civil service constitutes the countrys biggest work force.
2009 budget
The finance minister managed to trim expenditure from the US$12 billion requested to US$2,25 billion. This is still much more than the revenue target of US$1.4 billion.
Corporate and personal taxes were reduced which should see aggregate consumption rising and further stimulate demand. Increased growth will only come about with increasing use of resources much of which depends on increased investment. The aim was to get a smaller piece of a larger pie, still managing to increase revenues. Attempts were also made to curb revenue leakages by improving monitoring and tax collection systems.
However, banks need to adjust their policies. Generally transaction charges are high and banks give depositors much lower interest than they charge borrowers .
Table 1: Government debt US$ millions
MONTH TOTAL EXTERNAL DOMESTIC ARREARS
February 2009 4,690
July >3100
October 5,613 5,200 413 3,600
With foreign assistance still slow to come in, the burgeoning debt remains one of Biti’s biggest problems. He favours seeking Heavily Indebted Poor Country (HIPC) status. ZANU-PF legislators oppose this, voicing reservations about the loss of control of one’s own economy . Such warnings would carry more weight if they came from anyone else. We saw the damage the international financial institutions’ prescriptions did under ESAP, but alternatives still get little hearing against the current conventional wisdom.
The first problem for the new government was one Dickens’ Mr..Micawber would have expressed as : income ~ $20M/month, expenditure $100M/month (improving somewhat as the year progressed).
Table 2: government revenue & expenditure, 1st half of 2009:
revenue & grants total expenditure surplus (deficit) deficit/ revenue cumulative gap
Jan/09 4.7 100.0 -95.3 -20.3 -95.3
Feb/09 15.0 100.0 -85.0 -5.7 -180.3
Mar/09 44.0 100.0 -56.0 -1.3 -236.3
Apr/09 51.6 100.0 -48.4 -0.9 -284.7
May/09 66.8 100.0 -33.2 -0.5 -317.9
Jun/09 70.0 100.0 -30.0 -0.4 -347.9
The government has been getting 40% of its revenue from import duties, which will be reduced if/when we join the proposed COMESA customs union. (It’s been a 19-member FTA since 2000) – this makes Zimbabwe very vulnerable to world economic crisis. The delays in implementing the Customs Union give us a little relief.
Royalties raised
With world prices for precious metals rising, Biti announced that royalties on gold and platinum would be raised from 3% to 3.5% as from 1 January 2010 . Gold hit a record price in October, but figures for income from mining royalties have not yet been published.
US$510M has been obtained from the IMF, which Minister Biti said has been allocated as follows:
Table 3:
income, US$M source expenditure target
210 IMF 58 transport
57 Water & sanitation
15 health
7.8 education
72.2 unspecified
300 IMF 50 grain purchase
80 loans for production
140 clearing arrears
25 reserve
The government has raised more than $180 million from donors in Europe to help pull the nation out of recession, Finance Minister Tendai Biti said. The money was raised during a trip by government officials to countries including Sweden and Belgium
The German Ambassador to Zimbabwe said a group of major donors known as Friends of Zimbabwe were hoping to persuade the World Bank to increase its support to the Multi-Donor Trust Fund, a vehicle set up to help the transitional government rehabilitate the economy. But he said this would only happen if the Global Political Agreement (GPA) was fully implemented .
Figures for revenue so far in 2010 show we have a long way to go. The increase in productive income which followed the formation of the inclusive government lost momentum as the government showed itself paralysed by party divisions. As a result, revenue did not rise as fast as optimists had hoped.
Table 4: revenue and targeted expenditure, January- August 2010:
month Revenue, US$M need, US$M shortfall, US$M
Jan/10 ]- – – – – – – – – – – [ 400.0 250
Feb/10 ] – – – Total – – – [ 400.0 250
Mar/10 ] – – 6 months – – [ 400.0 250
Apr/10
] – – – – 900 – – – – [ 400.0 250
May/10 ]- – – – – – – – – – – [ 400.0 250
Jun/10 ]- – – – – – – – – – – [ 400.0 250
Jul/10 183.1 400.0 216.9
Aug/10 144.4 400.0 255.6
Stagnation threatens, and disillusion could follow.
If the constitution-forming process is wrecked again, donor funds will be even more difficult to find for a repeat performance. We are caught in a Catch-22 situation: the government needs money to change its methods of governance, but western governments demand to see improvements in governance before they will provide funding.
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