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Tendai Biti's State of the Economy Address- Fulltext

13 Dec 2016 at 13:08hrs | Views

As 2016 draws to an end, the Zimbabwean economy continues to be mired and arrested by a crippling crisis of confidence that is anchored on the structural issues of low productivity, deflation, stagnation and a corrosive macro-economic crisis.  

That macro-economic crisis is a trilemma of a fiscal crisis, liquidity crisis and external sector collapse.

The fact of the matter is that Zimbabwe is in the fourth year of a structural economic recession which the authorities do not understand and are incapable of offering sustainable solutions to stem the same.

Zimbabwe thus finds itself on the throes of another sustained long term down-turn.

In this document, we contend that urgent solutions are required to reverse the slide towards an economic depression.

We offer anti-cyclical solutions demanded by the urgency of the situation.

At the end of it all, we are alive to the fact that the crisis of confidence arresting our economy is a political crisis.

Ultimately therefore, the real solution to Zimbabwe's economic meltdown is a political solution.

The crisis of under accumulation

During the GNU, 2009-2013, the Zimbabwean economy was on an upward trajectory in respect of which average growth rate was 7% per annum. That growth rate was achieved largely as a result of a tight fiscal policy anchored on cash budgeting, extensive support to the productive sectors, deregulation of the economy and liberalising the country's capital account.

Systematic policy reversals since September 2013 have over seen a massive shrinkage of the economy.

The implementation of an expansionary predatory fiscal policy that has created a huge budget deficit, weak export performance, corruption and leakages, lack of competitiveness, lack of meaningful FDI, shrinking diaspora remittances and low levels of capital formation, persistent levels of disserving, have contributed to the crisis.

Figure 1 Captures the GDP growth rate from 2009 to 2016.
In the 2017 Pre-Budget Strategy Paper, produced in October 2016, government projected real GDP growth rate at 1.1% for 2015, 1.2% for 2016 and 4.8% in 2017.

Table 1 captures the 2017 Pre-Budget Strategy Paper Projections.

Table 1

With great respect, our own independent calculations reflect that actual GDP for 2015 was -1.8% with a projection of -3.8% for 2016.

Although the pre-budget statement was only realised in October 2016, the projected figure for growth announced in the 2016 budget is a modest 0.6% growth in 2016 and a projected 1.7% growth in 2017.

The huge differences between the projections in the Pre- Budget Strategy Paper and the Budget Figures is a reflection of lack of credibility and legitimacy in respect of government figures.

It is obvious that the function of macro-economic projection in government has ceased to be a science but an act of political prophecy, not based on figures and credible assumptions.

Revenue Under Performance
Since 2013, there has been a consistent decline in revenue collected by the Zimbabwe Revenue Authority. Revenue has thus slide from the prime position where it was 32% of GDP in 2011 to 23% in 2016.

Deindustrialization, and declining capacity utilization leakages, corruption and the increased informalisation of the economy are major contributors to the declining revenue.

Table 2:  Fiscal Trends (2009 -2015)                

The 2017, National Budget underscores the underperformance in revenue generation. In the period Jan-October 2016, revenue collections stood at USD2.876 Billion against a target of USD3.158 Billion thus creating a 9.8% gap, as illustrated in Table 4.

Table 3

Given persistent under performance of the budget, in the past 4 years, surely, it was wrong and imprudent for the Ministry of Finance to provide for a USD4.1 Billion in 2017.

It is dangerous and terrible economics to provide for an unfunded budget.
In fact it is implicit in Section 305 of the Constitution, that any expenditure appropriated from the consolidated revenue fund in a financial year must be met with approved revenues from the Consolidated Revenue Fund.

Our point is therefore that the Zimbabwean Constitution does not allow for the provision of a budget deficit.

It is a clear indication that the government will have to engage in legal and extra-legal activities to fund that budget.

It is therefore certain that the printing press will be in overdrive in 2017, to finance this budget deficit.

Whilst revenues have been declining, government expenditure has been ballooning and as a matter of fact, is out of control.

The 2017 budget reflects that cumulative expenditure for Jan-Oct 2016 amounted to USD3.84 Billion against the target USD3.32 Billion creating a variance of USD520 Million.

The same budget discloses that the budget deficit to year end 2016 will be USD1.18Billion or 8% of GDP.

A Budget Deficit of 8% of GDP which is not financed by legitimate and credible anchors is a disaster.

The point is budget deficits are legitimate, it is how they are acquired but more importantly how they are financed which determines legitimacy.

In the case of Zimbabwe, the budget deficit is as a result of corruption, extra-legal budget activities such as financing ZANU PF Party activities and an unsustainable wage bill.

Whilst financing of the budget deficit as will be shown below is through issuance of toxic Treasury Bills and raiding of RTGS Balances.

This is the numb of the Zimbabwean crisis.

The Minister of Finance has failed to ensure that Zimbabwe lives within its own means and as a result, the government has accumulated a huge domestic debt

As the PDP, we have consistently argued for the principle of a fiscal balance under pinned by the philosophy "we eat what we kill".

Minister Chinamasa has recklessly pursued an aggressive expansionary fiscal policy that paid no respect to fundamentals.

Since 2014, the government has been spending money like confetti and in the process has created a huge budget deficit.

The biggest disclosure in the 2017 Budget, was the disclosure that domestic debt as at 21 October 2016, was USD3.7Billion representing 26% of GDP.

Given that the year-end anticipated deficit is 1.18 billion it effectively means that as of 31 December 2016, the budget deficit will be more than USD4 billion which represents at least 32% of GDP as illustrated in Table 4 Below.

Worryingly for Zimbabwe is that the budget deficit has been accrued largely to finance recurrent expenditure. Put differently, this government has been bankrupting the country to support consumption as opposed to gross capital formation. The chart below reflects that.

First with a shrinking revenue base and a huge budget deficit, Mr Chinamasa sought to finance the same through the issuance of toxic Treasury Bills and the maintenance of an over-draft facility with the Reserve Bank

In his Mid- Term Policy Fiscal Review Statement of the 8th of September 2016, Mr Chinamasa made the following admission:

"Financing of the Budget deficit has been primarily through issuance of treasury bills by the Reserve Bank on behalf of Government .However, lack of capacity to service domestic debt has also seen roll-overs, which are posing some financial risks on domestic debt instrument holders and domestic financial institutions. This situation, unfortunately, is not tenable and is undermining the stability of the financial sector and overall economy"

In the same budget statement fully admitted to the fact that he had been raiding RTGS and Nostro Balances held at the Central Bank.

In short, the government has been raiding banks and hence the cash shortages and liquidity crisis in Zimbabwe

The Table 5 Below reflects the illegal government position at the Central Bank

Table 5

In terms of our law, it is not possible for the government to maintain a facility with the Reserve Bank of Zimbabwe.

Furthermore, it is not legally possible for the government of Zimbabwe, to utilise depositors' funds held in RTGS balances.

The country thus faces a major liquidity crisis. Table 6 shows liquidity trends in Zimbabwe in the banking sector.  The diagram shows the treasury bills that have been issued.  What it does not show of cause is the Nostro and RTGS balances which Minister Chinamsa, has been helping himself to since April 2014.  

    Table 6.
Liquidity Trends in Zimbabwe Banking Sector (US$ million)        

The liquidity challenge has forced the government to introduce the Bond Note.

The Bond Note represents an illegal unconstitutional process of money creation which is not backed by any reserve or value.

Upto now, it is self-evident that the Afrexim facility of USD200 million does not exist. Even if it existed the formal processes of sovereign debt contraction have not been complied with.

Besides, given the size of our exports, USD200 million is a drop in the ocean.

The Bond Note only serves to liquidate any remaining confidence in the market.

The Zimbabwean economy is not producing due to massive deindustrialisation.  Without producing, Zimbabwe can export less whilst it imports more.

There is a self-evident contradiction that is reflected in our supermarkets where most of the products are imported.  

In short Zimbabwe has become a huge supermarket economy that receives and consumes goods from South Africa (56%), China and the rest of the world.  

Thus since 2009 trade deficits have averaged US$3 billion and the current account deficit has been around 20% of GDP.  Table 7 below, is a graph showing Zimbabwe's external position as well as perhaps more importantly, the fact that we hardly have any foreign currency reserves.  

Table 7 : External Sector Indicators                            

The Budget presented by Minister Chinamasa on the 8th of December 2016 is anti-people and anti-development.

Any budget anywhere that provides for 96% of the same to go towards consumption is retrogressive.

Indeed to provide a paltry amount of USD520 Million for Capital Expenditure is absolutely anti-developmental.

The fact that two thirds of the budget is absolved by the four votes which include the Office of the President (USD187 Million), Defence (USD358Million), Agriculture (USD293 Million), Home Affairs (USD384 Million), is proof that this is a securocratic budget that is serving the interests of ZANU PF.

Indeed the Budget reflects that the 2018 election has started and that ZANU PF is bent on subverting the people's will again.

As we come to the close of 2016, November 2016 statistics reveal that, over 4 million Zimbabweans are at the verge of death due to starvation and are thus in need of food aid. The number is projected to increase to 5 million Zimbabweans by March 2017.

In the decade following the chaotic Fast Track Land Reform Process, the country was plunged into grain shortages.

In the past three years the maize import bill has been on the increase, with the country spending in excess of USD550 million on maize imports to import a minimum of 400 000 tonnes of the same grain.

The government's decision to implement an archaic Command Agriculture Special Maize and Small Grains Production Programmes, has not yet begun to yield results, and will most likely be unable to yield the much hyped about dividends as it will be riddled with corruption and the perpetuation of the dependency syndrome of the so-called new-farmer who is still referred to thus some 16 years after the FTLRP.

We all know that such schemes as Command Agriculture, Free Input Scheme and the mooted Presidential Inputs Support Scheme are used by the dictator as tools of control in order to retain power.

Abuse of food aid is the biggest challenge that the majority of the poor rural Zimbabweans are facing as food aid is being distributed along partisan lines.

In 2016 alone, Zimbabwe has received in excess of USD25 million in food aid and drought relief. It is unfortunate that the intended beneficiaries fall prey to politicisation of food aid particularly in the dry areas of Masvingo, Matabeleland North and Matabeleland South and some areas of Midlands.  

In the last 5 years Zimbabwe has witnessed unprecedented levels of the collapse of social service delivery.

In 2016, the health sector has been the most affected sector. There has been a total collapse of the health delivery system in Zimbabwe.

The fact that in September of 2016, key major referral hospitals in Zimbabwe suspended operations due to the lack of pain killers, albeit for a short period of time, is telling of the state of public healthcare in Zimbabwe.

The fact that Zimbabwe's Doctor to patient ratio is currently estimated to be at 1:12 000 is telling of how incapable the health care sector is of delivering the needs of Zimbabweans.

Lack of funds has undoubtedly affected the operations of the health sector. In the 2016 National Budget, the Ministry of Health and Child Care was allocated about US$330 million, 9, 7% of the country's US$4 billion budget.

The allocation is against the country's population of 13, 5 million, means that the Government intends, on average, to spend US$24 per every individual for the whole year, with such intentions, no wonder the healthcare system has totally collapsed.

Sovereign debt crisis
Zimbabwe faces an unsustainable debt crisis now 79% of GDP.

In our books, LIMA has failed and failed in sovereign terms because this government is not capable of reform

Indeed it is clear to everyone that this government has made certain material none disclosures to the IMF and others which makes re-engagement impossible.

For starters, this government cooked books and hid the figures of the budget deficit and domestic debt.

In 2015, the budget deficit was 8% of GDP yet the IMF was misled into producing a report on the 4th of May 2016, which claimed that Zimbabwe had met its primary balance.

It is our position as PDP, that Zimbabwe needs a fresh and honest debt approach based on the legitimacy of genuine reforms.

Quite clearly this is something that ZANU PF is not capable of.

We contend therefore that debt relief, just like genuine reform, under a ZANU PF is not possible.

It is our respectful contention that the Zimbabwean crisis is deep rooted in structure and therefore requires a bold and major paradigm

Zimbabwe is at a cross roads, and to get salvation, Zimbabwe requires a collective team of leaders that is brave, honest, clear, strategic and decisive.

Further to the extent that the Zimbabwean crisis is largely political, a political solution is a pre-condition to the resolution of the crisis.

This is precisely why the PDP is calling for the establishment of an NTA.

However in the absence of the NTA, we offer the following Ten Point Platform for the immediate resolution of the Zimbabwe economic crisis:

1.    Macro-economic stability
We contend that it is imperative to restore macro-economic stability in Zimbabwe

In this regard we contend that fiscal discipline must be maintained and that the government must immediately resort to the principle of Cash Budgeting

The philosophy of "We Eat What We Kill" must be the new dominant philosophy in government

Further the budget deficit of USD1.18 Billion including the domestic debt of USD3.74 Billion must be eliminated in the 2017.

2.    Financial Sector Stability and Liquidity
It is our respectful contention that the government must immediately scrap Bond Notes.

In the process of scrapping off these Bond Notes, the government must encourage the use of alternative money particularly debit cards, point of sell machines and RTGS facilities.

Point of sale machines must be included in the informal market as has been done successfully in other countries.

Equally the government must immediately repay all the monies that it has stolen and raided from the Central Bank of Zimbabwe.

In the Mid-Term, we contend that the government must join the Rand Monetary Union and must adopt the rand as the principle currency of exchange in Zimbabwe, as South Africa is already our biggest trading partner anywhere.

In the Long-Term the government must push for regional integration and the establishment of a monetary union in the SADC and COMESA region.

The regional currency in the new monetary union is Zimbabwe's long term currency.

In short, under a PDP government, the Zimbabwe Dollar will never be returned.

The government must set up an independent audit commission with the view of establishing the true extent of domestic debt, including budget deficit

3.    Industrialization
The country needs to alter its accumulation model from raw extraction to beneficiation

The repealing of the Indigenization and Empowerment Act, will facilitate for Foreign Direct Investment to revive industry.

Further, the government must invest in facilities to increase the ease of doing business in Zimbabwe and decrease the cost of doing business, which will in effect encourage investment.

4.    Rationalization of the 2017 Budget  
It is respectfully contended that the 2017 Budget is unsustainable and unachievable.

We therefore propose to reduce the Budget to an achievable target of USD3 Billion which can fully be covered by domestic revenues.

Off line we believe that it is possible to raise an additional USD1 Billion from the international community.

Development partner assistance will go a long way in absorbing the state obligations in the social sector particularly areas around BEAM, Cash Hand-outs and Grants, education, procurement of drugs and food aid.

The composition of the new budget should be re-geared towards capital expenditure and key social functions.

5.    Retrenchment of Expenditure
The current expenditure obligations of this government are unsustainable.

The immediate target will be the wage Bill which is consuming 91% of expenditure.

The size of the public sector increased from 236 000 employees during the Government of National Unity (GNU) to 550 000 workers in the post GNU.

This effectively means ZANU PF has recruited 314 000 ghost workers in a space of three years.

There is a need to suspend at least 200 000 of these ghost workers pending a thorough audit.

Even if it turns out that there are genuine workers in the 200 000, the same must be retired on a basis of a social program that will allow them to rebase their lives, after all most of them own land in the Model A1 Or A2 Schemes.

Put simply, the ghost worker must return to the land.

The government is also spending huge amounts of money in unnecessary expenditure particularly VIP and VVIP travel.

All these are obligations that can be obviated through the strict implementation of cash budgeting and strengthening of the Budget Allocations Committee in the Ministry of Finance

6.    State Owned Enterprises
At least 30% of GDP is being drained through state owned enterprises that have become a vehicle of patronage.

Air-Zimbabwe, ZIMDEF, CSC and the Grain Marketing Board, are few examples of state owned enterprises whose sole function is that of capturing rent for ZANU PF elites.

We propose the rationalization of state owned enterprises through disposals and commercialization.

It is unacceptable for instance that the state owns two loss making mobile phone networks when elsewhere in the world it is impossible for mobile phone companies to register a loss.

The same parastatals have created huge local debt e.g. Zisco Steel, Zimbabwe Development Bank, NetOne/TelOne.

The reform of state parastatals is as long overdue as it is necessary.

7.    Restoration Of Land Value
The revival of the agricultural sector is predicated upon the restoration of the land value through the issuance of land title i.e. title deeds to all the beneficiaries of the land reform program.

Title deeds will enable farmers to access bank loans for agricultural investment.

In the long-term, the government needs to put a full stop to the land question through the payment of compensation and putting in place a comprehensive land audit that will ultimately result in one man- one farm.

8.    Mining
Zimbabwe is endowed with world class reserves of commodities which however are regulated by imperial regulation that promotes primitive accumulation and self-aggrandisement.  

There is thus an urgent need of crafting a new mining law that will deal with the following:

(a)    The transparent and equitable allocation of mining rights

(b)    The definition of the time-frame in respect of which mining resources must be exploited including the incorporation of the "use it or lose it" principle

(c)    The crafting of a framework for beneficiation and value addition in the mining sector

(d)    The placement of the Zimbabwe Revenue Authority in the entire value chain of mineral production

(e)    The creation of linkages in particular spatial linkages that will transform mining from a high value low impact industry to a high value high impact industry

(f)    The creation of a Sovereign Wealth Fund to preserve revenue from mining for future generations

(g)    Defining the environmental framework for sound mining practices

 It is also imperative to craft a Diamond Act that will deal with all the shenanigans around our diamonds.

The government of the day must also as a matter of urgency set up an international commission to investigate the missing diamond money.

9.    International Re-Engagement
We contend that Zimbabwe needs to urgently end its isolation and engage other countries in the international community

In this regard two things are critical:  

(a)    A Marshal Plan for Zimbabwe

Zimbabwe's finances are too fragile and it will not be possible to forge ahead without the convening of a Zimbabwe Conference on Reconstruction and Development (ZIMCORD 2).

We provide full details of this in our HOPE Document.

(b)    Resolving the Debt Crisis

Zimbabwe's Debt overhang which is 79% of GDP is not sustainable.

It is important that this government adopts HIPC as a debt resolution strategy and implements sustainable reforms in line with HIPC.

Any other plan which is not HIPC will not work.

 The capital injection will be utilised on infrastructural development, which will also create employment for the 92% of the unemployed Zimbabweans.

10.    Gross Capital Formations and Savings
Due to the disaster in the financial sector Zimbabwe has gone through a period of DE- savings with savings standing at -10% GDP.

We contend that no country can develop without such capital injection.

It is critical to overhaul banking infrastructure through resolution of the liquidity and currency crisis as suggested above.

A good savings platform and resolution of debt crisis will avail to Zimbabwe billions of USD that it can then use as a platform for gross capital formation.

Zimbabwe needs at least USD 12billion to attend to the gross capital formation deficit.

Zimbabwe needs to construct new dams, roads, power stations and rail way systems.

Gross capital formation is therefore urgent.

In conclusion, l would like to wish the people of Zimbabwe a restful festive season, God knows we have had a tiring 2016.

During this period of rest, may the people of Zimbabwe be rejuvenated and find more strength to fight for another Zimbabwe in 2017.
May 2017 be a the year we find the last straw that will light the bon fire to burn corruption, police brutality, electoral theft, division and repression.

May God bless you, and May God bless the beautiful nation of Zimbabwe.

I  Thank You!!

Source - Tendai Biti
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