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SundayOpinion: The 4th Money Concept for Zim

The funds would in the main cater for civil servant’s salaries and pay off old Zimbabwe dollar deposits in United States dollars.

The proposal entails the GoZ accessing funds amounting to US$5 billion through a Syndicate Loan and is envisaged to result in increased aggregate domestic demand thus increasing economic activity and reducing unemployment.

The Treasury Bonds (TB) arising from the Syndicate Loan would also enhance inter-bank market trades, which presently are essentially non-existent.

The 4th Money concept is a noble idea envisaged to help stimulate economic recovery that has hitherto remained a mirage due to poor disposable incomes and the ructions in the inclusive government.

Another gridlock to recovery efforts has been the lack of confidence in the banking sector, spawned by the inclusive government’s failure to compensate Zimbabwe dollar depositors since dollarisation in February 2009, due to budgetary constraints.

All these factors have combined to aggravate the plight of ordinary Zimbabweans, in particular the civil servants who are still earning below the breadline in spite of the recent salary review.

The current poor working conditions for the civil servants have resulted in appalling service delivery and rampant corruption. There is no doubt that given the current poor salaries for the civil servants, these public workers need to be “incentivised” or remunerated in a befitting manner.

That said, a platform must, however, be created to allow for the development of the 4th Money in a sustainable way.

By this I mean that the idea needs to be tied to other government policy frameworks.

Currently the government is operating on a cash budgeting fiscal framework which essentially does not allow for borrowing given the limited revenue base.

Furthermore, the government has a high default risk having failed to service its obligations and arrears.

There is need for the government to generate additional revenue which will go towards the half-yearly interest obligations and the final payment after the 10-year period.

Without any significant revenue inflows chances that the government will default are significantly high. In the event that the government defaults on its obligations this will impact on confidence and potentially cascade to the financial sector (due to the exposure to the TBs).

For the period January to May, Government net revenues amounted to US$1 074,4 million just ahead of the US$1 0313,3 million target while net expenditure was contained within the planned target of US$956,7 million at US$914,4 million.

Tax revenue accounted for US$985,7 million while current expenditure was US$836 million.

The current fiscal position is artificial given the accumulation of government arrears and the recent salary increases.

In view of outstanding obligations incurred, the surplus position is not likely to be sustained during the remainder of the year.

The Minister of Finance, Tendai Biti, in his monthly update noted that the budget faces unfunded expenditure pressures of about US$445 million (5% of Gross Domestic Product), excluding costs associated with the recent wage increase.

It should be noted that for sustained economic recovery, it is essential that the government channels a significant portion of its budget towards capital expenditure so as to support the maintenance of growth enhancing infrastructure.

In May 2011, the International Monetary Fund, after conducting the 2011 Article IV consultation discussions with the Zimbabwean authorities, noted that there are impediments to further economic growth. These include: the likely substantial fiscal financing gap for 2011, financial sector vulnerabilities and weakness in the business climate worsened by the recently gazetted fast-track indigenisation of the mining sector.

The fiscal gap is a result of wage bill overrun and a large stock of outstanding domestic payments arrears accumulated by end-2010.

However, the gap could be reduced by the removal of ghost workers, controls on employment levels and a reduction in low-priority transfers to State-owned enterprises.

Zimbabwe remains in debt distress exacerbated by the recent non-concessional borrowing of the government. Hence, significant social and developmental issues could be addressed through grants or highly concessional financing, as onerous debt service payments could crowd out future social expenditures.

It is for this reason that the idea of the 4th Money comes like sweet music to the ear because it minimizes the adverse effect of cash shortages or rather liquidity challenges on critical government expenditure while measures to relieve the foreign currency shortages are being implemented.

In fact, what is interesting and exciting about this concept is that it is financing obligations that are already sitting on the government’s books.
Aaron Makaza is an analysts based in the United Kingdom.

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