Analysis of the Mid-term fiscal policy review statement

Hon. Dr. T Mashakada, MDC Shadow Minister of Finance

The Mid-Year Fiscal Policy Review Statement is a bankrupt statement which is anchored on a bankrupt  Zimasset policy document. Neither does it pursue any National Vision. It is a statement that is bereft of fiscal stabilization measures. It lacks pro-active economic stimulus measures. The Minister of Finance squandered the rare opportunity to re-align the budget and tackle the crippling debt problem which he conservatively puts at $9.7 billion.

1.Stability Issues

1.1 Debt
The country is mirred in a fiscal policy crisis which is taking a heavy toll on all sectors of the economy. Clearly the Minister’s debt figures are contestable. The Minister, for reasons unknown to the Nation, was conservative with the truth when he put the total national debt at $9.7 billion. We don’t know much about the foreign debt due to the lack of transparency on debt contracting by the State. However, economists estimate the domestic debt figures as follows:

• Treasury Bills  $4 billion (estimated)
• RBZ debt takeover  $1.3 billion (actual)
• Commercial banks debt  $3billion (estimated money taken from interbank RTGS and RBZ NOSTRO accounts)
• Official budget deficit ($630 million as at June 2016 -actual)
• Payment arrears to suppliers, transfers, embassies etc (estimated $3 billion)
• Public enterprises/municipal debt (estimated $5 billion)
• Compensation debt $10 billion (estimated compensation owed to former white commercial farmers)
• TOTAL ACCUMULATED DOMESTIC DEBT should be estimated at $24 billion, not  $2.2 billion.

Given the discrepancy between the official figures and estimates from economists and economic analysts, it is necessary to have a fresh independent audit of the domestic debt.

1.2 Fiscal Space

Six months government expenditure

Total expenditures and net lending  for the first six months (Jan-June 2016) stood at $2.316 billion against the budgeted target of $4billion.  This represents uncontrolled expenditure to the tune of $308.4 million. During the period under review, employment costs alone gobbled $1.638 billion compared to $216 million on Operations and Maintenance; Interest ($54 million) and Capital Expenditure ($407 million).

Employments alone constitute 96.8% of total Revenue.

• Government has an insatiable appetite to spend.
• Government has scrapped payment of bonuses and intends  to reduce the already meager salaries and allowances of civil servants. This is wrong. Instead, government should cut, foreign travel, perks and salaries of Ministers and parastatal bosses.

Six months revenue performance
Revenues to June 2016 stood at $1.692 billion compared to the Budget Estimate of $3.850 billion.  At 26%, tax contribution, VAT is still the dominant revenue head suggesting that Zimbabwe is largely a supermarket economy.  Compare this to company tax which is a paltry 8%. Import taxes (Excise and customs duty) contributed 28% while Individual taxes (PAYE) contributed 21%.

Six months budget deficit
The cumulative budget deficit for the six months period stood at $623.2 million compared to the Budget estimate of $150 million. The Minister reckons that by the end of the year, the budget deficit will hit the $1billion dollar mark.

From the above analysis, it is clear that government does not have the fiscal space to maneuver. Worse still, the economy is not performing. GDP growth forecast has been revised downwards from 1.7% in the budget to 1.2%. Even the 1.2% is still a very optimistic and therefore an unrealistic figure.

According to the revised projections, the key sectors of the economy are not expected to perform in 2016.

Therefore growth has been projected as follows:

• Agriculture    – 4.2% against 1.8% in the budget
• Mining        13.2% against 1.6% in the budget
• Manufacturing    0.2% against 2.1% in the budget
• Tourism    2.4% against 4% in the budget

Lack of domestic and foreign investment is undermining growth.
It is ironic that the theme of the mid year budget review statement talks about “building a conducive environment that attracts foreign direct investment”. Yet policies such as the indigenization and economic empowerment are scaring away capital. As we all know, capital is a coward. Domestic investment is affected by .the current liquidity challenges and prohibitive lending rates, which are short-term in nature.

Sluggish growth, coupled with a low inflation rate of 0.4% means that the economy is stuck in a deflationary mode.

1.3 Financial Sector Stability
Although all the banks are said to be in compliance with the prescribed minimum capital requirements and recording profits, we must take note that some of the financial institutions are heavily exposed to Treasury Bills. Hence they cannot meet demand deposits.

The cash shortages are still persisting. The imposed withdrawal limits are still in place. Restrictions on external payments are also still in place. The issue of Bond Notes is conspicuous by its absence from the Mid-Year Fiscal Policy Review Statement.  The Minister did not even mention the $200 million Afreximbank facility. We can only deduce that there was no such agreement from the Afreximbank in the first place.

1.4. Six months Trade Deficit (Jan to June 2016)
Exports contribute 60% of the liquidity flows into the country. At June 2016, the value of exports stood at $1.124 billion compared to $1.232 billion during the same period in 2015. Imports stood at $2.496 billion, compared to $2.917 billion during the same period in 2015. Hence the current account deficit during the six months period stood at $2.5 billion which constitutes 12% of GDP.

Diaspora remittances stood at $387 million compared to $457 million during the first half of 2015.

2. International Re–engagement
International re-engagement is dead in the water. The Minister did not even mention progress, if any, on the promised $1billion from Lazard bank and Afreximbank which is meant for settling arrears to the World Bank ($1.1 billion), IMF ($110 million) and AfDB ($601 million)  Nothing was said about the bail- out from Algeria.  The truth is that the success of re-engagement will critically depend on macro-economic and political reforms. As it stands, government neither has the ability nor the political will to introduce the much needed reforms.

We commend the efforts by the International Community which has stood by Zimbabwe. In 2016, total Development Partner support is projected at $474.4 million. Already $193.2 million was disbursed between January and June 2016, of which $73.8 million is from bilateral partners while $119.4 million is from multi-lateral partners.

• In addition, the following European countries should be thanked for assisting Zimbabwe throughout all these difficult periods, despite the sanctions accusation: UK, Australia; Denmark; Germany; Japan; Netherlands; Norway; Sweden; Switzerland and other EU members.
•   From Asia we must also appreciate the assistance from China and India.

3.Policy review thrust -  A mere rhetoric

No fundamental policy changes were announced in the mid-year budget review statement.

The Minister still harps on:

• Reducing poverty, stimulating the productive sectors, improving the ease of doing business, restoring fiscal discipline in the public sectors, rebuilding confidence in the financial sector, advancing re-engagement, mobilizing resources for ZIM-ASSET and maintaining the multi-currency regime.

There is no tangible evidence on the ground to show that the above measures are being implemented in earnest. Therefore, the mentioning of these measures is mere rhetoric. There is no implementation.

4.GUFFS
The proposed takeover by government of Hwange Colliery assets (houses and social amenities) is day light robbery. Government must face a law suit for expropriation. Instead of discouraging corporate social responsibility by mining houses, government should actually applaud Hwange Colliery for providing housing and social amenities for the community. But we all know that big wigs are targeting the leafy low density suburban houses of Hwange town.

The operational viability of Hwange is a corporate governance issue which has nothing to do with its corporate social responsibility. But the takeover by government simply shows its asset stripping DNA.

5. Positive Developments

5.2 Tourism

Visa Regime

Tourism is always a low hanging fruit. The re-classification of 37 countries from category C to B in order to grant visas at point of entry is commendable. This will promote Tourism. However, we are surprised why only the SEYCHELLES was given category A status which abolishes visa requirements?

Importation of Capital Goods

Tax exemption on imported capital goods for Tourism is welcome. Provisions of S.I. 5 of 2016 no longer apply

5.3 Infrastructure

During the first six months of 2016, cumulative disbursements towards infrastructure projects amounted to $112.6 million. This is a small figure but given the budget constraint, this is a step in the right direction. The resources benefited projects in the following sectors:

• Transport and Communication ($28 million), Energy ($25.5 million), Water and Sanitation ($20.2 million), ICT ($18.5 million), Housing ($12.2 million), Irrigation ($4.6 million) and Education/Health infrastructure ($3.6 million).

Project evaluation must be done on all outstanding infrastructure projects, especially the Tokwe-Mukosi Dam, which is taking forever to complete.  In fact investigations must be commenced in order to find out whether value for money is being realized. Investigations must also check on the costing of the dam and the penalties.  Suspected misappropriation of funds on this project must be investigated.

The Tender system on public projects must be re-examined. Zimbabwe is losing millions of dollars in over prized tenders.

• On Rural Electrification, it is sad to note that government is wasting public resources by not commissioning completed projects. A typical example is the rural electrification project done in Ward 17, in Chief Shumba area of Masvingo District, Masvingo Central Constituency of Hon Edmund Mhere (ZANU PF). The Project was completed in 2014 but its energisation has been delayed by the failure by ZESA to procure transformers and pre-paid meters. This is affecting the whole community including Manunure Secondary School and Machitenda Primary school.  This state of affairs could be prevailing country wide.

Again, this reflects incompetency and corruption in government departments. There is no sense of urgency. Neither is there a realization that public assets are lying idle.

• The finalization of the contract on the Beitbridge-Harare-Chirundu Carriageway is a positive development.  However, the cost of the project must be investigated. Different valuations were made giving different costs. For example in 2013, the road was estimated to cost $1.3 billion but now the cost has almost doubled.
• The upgrading of airports, especially the Harare, Bulawayo and Victoria falls airports is commendable.

6. Social Protection
The country is facing a humanitarian catastrophe. Education and Health standards are collapsing due to lack of funding. About 6 million people need food aid. Government must prioritize humanitarian assistance.

7. Revenue Enhancing Measures
The Revenue enhancing measures announced in the mid-term fiscal policy review statement are merely addressing administrative efficiencies. These may slightly improve revenue collection provided government firmly deals with corruption and revenue leakages.

8.Corruption
Transparency and Accountability is important for economic growth and development. The levels of corruption we are witnessing in Zimbabwe are alarming. Corruption takes the form of:

• Rent-seeking
• Public procurement (tender scams)
• Asset Stripping
• Illicit financial out flows (e.g the $15 billion diamond money that has gone missing)
• Externalization

 10.Conclusion
The budget deficit is the eye of the fiscal storm. The Zanu (PF) government is clueless on how to run the affairs of the country and manage the economy. Zanu (PF) is bankrupt on economic issues. The country is experiencing a shut down as government can hardly pay civil servants salaries or contain the humanitarian crisis. The investment climate is soiled by political risk. The country is run down and the economic melt-down has reached its bottom.

The MDC will resist and take measures against the cutting of civil servants’ salaries, allowances and bonuses. The only honorable thing to do is for government to step down and allow electoral reforms to pave way for a new democratic and accountable government which can only be ushered in through free and fair elections. The MDC will not relent in its quest to force the Zanu (PF) government to accede to political, electoral and economic reforms through lawful means.