No ‘perfect’ budget

There is no such thing as a perfect budget. There are just budgets. The growth that has been forecast is more of a reflection of the politics of the day, rather than the economics.

When a national budget is presented, and all commentators agree that the budget is fair, then we either have a perfect situation in Zimbabwe or we do not understand what has been put before us.

Budgets by their nature are a competition for limited resources from different, often conflicting, interests. The state (as represented by the ruling party) allocates the resources according what they feel are national priorities. As a result, some gain, some lose. Budgets generally make some people happy and others upset. Political parties in power often allocate resources in a way that reflect their ideological beliefs.

As an example, if the MDC- T is a workers’ party, it allocates resources in a way that favours the workers and in most cases upsetting others such as employers in the process. There are rumours already about the possibility of parliament refusing to sign off the budget because there is no allocation for pay increase and luxury cars for them. In other words, they believe that the budget is unfavourable to them.

The 2012 budget should not be viewed as a medium to long term budget, it is not necessarily a pro-poor budget as it claims, but it is a decent budget to manage the challenges that the country faces today. It is not a budget where the government deliberately tries to stimulate the economy; it is one where the government acknowledges that things move when the government does nothing! The minster of finance seems to accept that there is paralysis in government and it is not possible to make big decisions. Sadly, economies need big decisions to be made if they are to grow on a sustainable trajectory.

Sustainable growth?

The main mystery in the 2012 budget is the question of where the growth comes from and whether that growth is sustainable. In a normal economy, the main driver of economic growth is savings. The minister concedes that the government does not have any surplus and the savings record of Zimbabweans is not impressive. In fact, the pattern for saving from the past three years is on a downward trend, which would normally suggest lower growth figures in the future. With such poor savings record one wonders why the minister seems to be taking more money away from people’s income as shown by rising collections of income tax.

The minister also concedes that he does not know where a significant part of the economy is. One can only assume that we hide a significant amount of money under the mattresses and pillows. If this is the case, then this keeps money away from the official system and it is a reflection of the fact that people do not have confidence in the official system culminating from the last decade where government raided private bank accounts. One would have expected policies such as deposit guarantees to encourage savings.

The minister also correctly identifies the fact that the country has a significant current account deficit. A current account deficit means the country is spending more paying outsiders for imports than it receives from exports leaving a currency shortfall. This situation can be bad especially for a country that does not have its own currency because it cannot be remedied by simple devaluation of the local currency. In a properly functioning economy, this gap is filled my foreign investments into Zimbabwe but in our country, the politics ‘seizing assets’ is keeping foreign direct investment away. The budget suggests a potential financial crisis looming. The problem is much bigger and requires bolder decisions than we have been proposed.

Diaspora bond

The continuing increase in the chunk of the economy that is being gobbled up by the state is also a worry because this leaves less money in private hands. Another indication that the minister has taken a short term view is that of the Diaspora bind. If the minister had taken a long term view, he would be promoting a ‘Diaspora Equity Fund’ not just a ‘Diaspora Bond’. The former being a more long term solution where the Diaspora is encouraged to own things back home while the later means the Diaspora is lending money to the government.

Our growth is like a peace dividend, it is a result of inaction by the state. We should perhaps call it the ‘GPA Bureaucratic Inertia Dividend’. It should therefore not be seen as long term, it will last as long as the GPA.

To give the minister some credit, the do-nothing philosophy is probably what works at the moment. It reflects the politics in the country today.

Who ever wins the next election (whenever that will be held) will inherit an economy with fundamental structural flaws because the 2012 budget does not deal with them. There are blizzards at the end of the Indian summer. For now, it’s perhaps a matter of managing and enjoying the ‘good times’ – something that we have not done for a long time.

Post published in: Opinions & Analysis

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