In the absence of a national currency, the budget is the only means that the State has of declaring its intentions and moulding the economy to its vision of where we are going. This makes our budget even more important than usual.
This is also the new Minister of Finance’s first opportunity to give a clear vision of where he thinks we are going. The backdrop against which he is going to do this is daunting to say the least. Zimbabwe is sliding into an economic abyss and it’s difficult to see how he can stop this headlong collapse.
In 2008 when the MDC-T took responsibility for the economy, it stepped up to the plate to rescue the country from total collapse. Although the statistics still do not show the full extent of the success achieved, it was dramatic: 2008 – budget $280 million; 2009 – $900 million; 2010 – $1,7 billion; 2011 – $2,8 billion; 2012 – $3,6 billion; 2013 – $3,8 billion. That is an average annual growth rate in revenues to the state of 55 per cent.
But the harsh reality is that we could not recover to where we might have been if the 1997 to 2008 collapse had not happened which would have been a GDP of $20 billion and a budget of $6 billion. This meant that when we handed back responsibility for the budget and the economy to Zanu (PF) a few months ago, that they had insufficient funds to do what was needed and what they had promised in their election campaign.
Had the MDC-T won the election, we would have been in a much stronger position – our government would have rapidly gained recognition, our economic and political policies would have brought clarity and certainty to the key economic players and although we could not expect a rush of new resources, both human and financial, I can confidently say that our budget would have been significantly larger than that which Chinamasa will bring to the table next month.
He has a near impossible task. He is in a straight-jacket from an options perspective – he dare not abandon the multi-currency regime, he has to comply with the IMF SMP and his revenue base is not expanding with little real prospect of widening the tax base or increasing inflows.
The irresponsible decision, just prior to the election, to write off the outstanding overdue debts owed to utilities, local authorities and others has plunged key institutions and players into a severe economic crisis of their own – they cannot pay their creditors, local revenue streams have sharply contracted and are not recovering.
Stress & failure
The civil service – now three times the size it was in 1980 at Independence – absorbs 70 per cent of all the revenues coming to the state. Zanu (PF) made rash promises to them that they would get a significant increase; they talked about doubling the minimum wage and promised the armed forces better working conditions. None of these promises can now be fulfilled and so far they have not even been able to pay the annual bonus.
Perhaps most critically, the banking system is showing signs of severe stress and failure. The Reserve Bank is insolvent and until it is recapitalized it cannot support any of the banks that are facing cash problems. A month ago one Commercial Bank was unable to pay out its depositors, last week the list had grown to 5, 2 of these have virtually stopped functioning.
The banks now have 35 per cent non-performing debt, they owe each other money through the interbank market and they are owed hundreds of millions of dollars by state organisations that have just had hundreds of millions of debt written off in their balance sheets.
There is simply no good news in the local markets and the sense of crisis on the streets of our cities is palpable. The one ace that he may be able to play is that of the Marange Diamond fields. Like our national statistics, the official statistics of production and sales from Marange give only a fraction of the wealth that has been extracted from the discovery since 2006. I estimate that the fields have yielded at least 100 million carats of diamonds, worth at least $10 to $12 billion. However 90 per cent of this has been in the form of easy pickings from alluvial beds that simply required the miners to sift through thousands of tonnes of sand to extract the diamonds.
These easy gains have now been exhausted and what remains are billions of carats of diamonds locked into a hard conglomerate that is very difficult to mine and process without destroying the stones and producing a very expensive diamond-laden dust. The existing mines are all in trouble and are scaling back on their operations but, like a baboon who has reached into a calabash and grasped a maize cob and will not let go and take his hand out of the jar, these operators do not want to relinquish their grip on the source of wealth that they have been exploiting for the past four years.
Reserve Bank debt
Chinamasa has stated that he wants to use the diamond field to raise substantial funds for the fiscus. I am sure that discussions have been taking place behind closed doors on just such an operation and right now $10 billion would be a life saver. The problem is that none of the existing operators have the technology or the resources to exploit the remaining deposits and those that do, are not coming to the party.
A further problem is that government has had to take over the debts of the Reserve Bank ($1,4 billion) and in addition, I am informed that the ministries they controlled in the GNU have come forward with over $1 billion in new debt that was not previously disclosed. This comes at a very bad time. An IMF review has just been concluded, another will take place in the New Year. The minister must be able to report progress in fulfilling the undertakings given earlier this year when the IMF SMP was agreed and signed.
The temptation to go back to printing money, to use the remaining balance of the SDR reserves for recurrent expenditure, is huge. Either action would simply trigger the final disintegration of what is left of the economy. Tough call for anyone.
MDC budget success
When the MDC-T took responsibility for the economy in 2009, it stepped up to the plate to rescue the country from total collapse. This is what was achieved:
2008 – $280 million
2009 – $900 million
2010 – $1,7 billion
2011 – $2,8 billion
2012 – $3,6 billion
2013 – $3,8 billionPost published in: Opinions & Analysis