A MAJOR challenge that the 2009 Budget remains faced with is the low levels of revenue inflows that have made it impossible to meet departmental requirements.
Over the past years government was used to over-spending on the strength that the Reserve Bank would print money to meet its budgetary demands.
President Robert Mugabe is on record saying the central bank should run the mint if government is broke.
Not only had the printing of money without production to support it increased inflation and money supply, lowering the country’s creditworthiness, it also resulted in huge budget deficits over the past five years.
With the introduction of multiple currencies in February, questions are being asked if government would be able to live within its means this time around.
Economic analysts said government should cut non-essential expenditure like buying luxury vehicles for senior government officials and ministers and international trips.
In his fiscal policy review last week, Finance minister Tendai Biti —— who claimed to be determined to cut government expenditure —— saidÂ the 2009 budget already has challenges with regard to financing agriculture, the country’s economic mainstay.
Requirements for the 2009/10 summer cropping season, estimated at US$880 million, are not only almost equal to the entire 2009 National Budget of US$1 billion, but are also in excess of the domestic financial sector savings deposit base.
“Additional budget challenges emanate from requests by some ministries for funding in areas that had not been covered within the US$1 billion 2009 envelope,” Biti said.
He said ministries, notwithstanding their appreciation of the realities of cash budgeting, continue to raise bids for additional requirements.
The requests include services for the audit of payrolls, requirements for decent public service remuneration, public service delivery, infrastructure, the new constitution-making process, diplomatic missions’ running expenses, national examinations expenses, and other outstanding creditors.
In the fiscal review, Biti said government officials and ministers would be restricted in using mobile phones, vehicles, fuel allocation and foreign travel as part of reducing government expenditure.
ZB Financial Services economist Andrew Chirewo said given the prevailing modus operandi (that is the dollarisation of the economy), government will be “forced” to operate within budgetary allocations because of lack of control of money supply.
Chirewo said while budget deficits per se were undesirable, in certain circumstances they boost economic growth.
“Countries with poor macroeconomic management frameworks and fiscal indiscipline (such as Zimbabwe) often incur budget deficits to finance consumption or recurrent expenditure which has little positive bearing on future economic growth. In such cases, budget deficits become undesirable,” Chirewo said.
He cited South Africa and Botswana as beneficiaries of budget deficits.
South Africa, Chirewo argued, was projected to incur a decade-high budget deficit of 3,8% of GDP in 2009, but “we cannot say the budget deficit is bad or ill-advised because the expansionary fiscal stance has been necessitated by the desire to accommodate capital expenditures relating to construction of soccer stadiums and upgrading of social amenities ahead of the 2010 Soccer World Cup, which will definitely have a positive effect on the country’s economic outlook”.
Botswana has had to “unavoidably” incur a budget deficit of around 10,9% of GDP in 2009 to accommodate additional expenditures aimed at shielding the economy from the global financial and economic crisis, while the United States and European Union are also running budget deficits aimed at stimulating economic growth.
“Avoiding budget deficits naturally implies running a cash budget or a surplus budget. For Zimbabwe, surplus budgets are achievable when there isÂ vibrant economic growth, underpinned by superb export performance, high levels of employment, both human and physical capital, as well as limited necessity for expansionary government expenditure,” Chirewo said.
Corporate lawyer and newspaper columnist Alex Magaisa said history has shown that government has generally failed to live within its means and Biti’s Herculean task is to inculcate discipline in line ministries.
“The trouble is there is so much that needs to be done and all this require resources but there is little by way of resources to do it,” Magaisa said. “At the moment as a country we are living like hunter-gatherers, living from hand to mouth and whilst this might permit survival, it does not provide the facility for development at all,”
Magaisa said too much of the government revenue was being expended on “survival needs” as opposed to “growth needs” —— for example, 60% has been spent on the allowances for civil servants and 18% on ministries’ operation expenses.
“These are not substantive industrial activities and on top of that the allowances are below the taxable threshold which means government is not earning any tax revenues from these sources,” he explained. “Now we all understand why this had to happen but clearly there has to be more and better ways of raising revenue, not only to sustain these non-cash generating expenditures but also to ensure there are more resources for other productive sectors of the economy.”
Economist Brains Muchemwa said Biti should be very strict with allocating “extra money” as most ministries were used to over-spending before dollarisation.
“From the primary operating perspective, it is not possible to run budget deficits since we do not have reliable and accessible funding sources now. Budget deficits are not bad phenomena, but what matters is the extent to which we dig into deficits and the funding strategy,” Muchemwa said.
He said government must learn to live within its means and curbing the propensity to engage in populist but expensive jaunts. He said government needs to respect money and appreciate that it does not grow on trees. The analysts questioned how a government of limited means can spend about US$8 million to buy foreign-made vehicles for parliamentarians.
They said Biti was right when he said priority must be on purchasing locally assembled vehicles.
“Ministers should lead by example and buy vehicles from Willovale Industries and MPs should follow suit. I could never imagine a French president driving anything other than a French-assembled vehicle, let alone an American president driving around in a non-American vehicle,” Magaisa said.
He said in other countries, leaders who shun locally-produced products would be considered an embarrassment and they would be forced out, but in Zimbabwe it’s a mark of greatness to drive around in a foreign-made vehicle.
“It is absolute nonsense for MPs to say that they are entitled to their choice simply because they are getting loans. Everyone knows these are preferential loans. Who else is getting a loan from the bank to buy a car?” Magaisa questioned. “Would 90% of them get a loan if they applied to a bank? I doubt they have the credit-worthiness. They should be grateful the taxpayer is affording them an opportunity to buy a motor vehicle, some for the first time in their lives.”
Economic consultant Eric Bloch said not only was economic recovery critically dependant upon government living within its means, but government had no alternative, “for it neither has any borrowing powers in the current environment, nor the ability to print money”.
Bloch said government must therefore maximise its means, without resorting to overly-burdensome taxation (which would deter investment and undermine economic recovery). It could achieve that maximisation by a variety of means:
“In the short term government should enhance enforcement of tax compliance; stimulate the economy, which results in increased fiscal revenues; accelerate privatisation of parastatals, and disposal of excess state assets; and restore unreservedly harmonious international relations, thereby establishing opportunities of increased donor support,” Bloch said.
“Once governmental solvency has been restored, there is no need for an absolute avoidance of deficits, but deficits should only be at readily sustainable levels, and only to the extent of absolute need,” said Bloch. Â
“In a virile economic environment, minimal deficits are not imprudent, if occasioned by genuinely necessary expenditures,” he said. “There is no doubt that, in the past, some ministerial spending was grossly excessive and highly irresponsible, but Minister Biti appears to be taking constructive actions to curb such profligacy.”
BY PAUL NYAKAZEYA