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Zimbabwe records a budget surplus, But

26 Apr 2020 at 08:23hrs | Views
Zimbabwe recorded its first fiscal surplus since 2011 as a result of significant contributions from Intermediate Monetary Transfer (IMT) Tax, subdued investment on capital expenditure and civil service wage compression. Value Added Tax (VAT) and Excise Duty remained the biggest contributors to government coffers in 2019 with collections amounting to Z$5,949 billion for the earlier and Z$4,117 billion for the latter. IMT Tax contributed Z$2,663 billion for the full year 2019, all thanks to high levels of inflation which pushed the value of electronic transactions to record levels. Year on year inflation raced from 57% in January 2019 to 521% in December 2019. The country's payments system is dominated by electronic (Mobile money, plastic and online) modes of payment which account for 96% of all national transactions and provide a solid base to treasury for IMT tax collections.

The revenue performance for 2019 looks exciting on face value despite regressing to 2011 levels due to economic decline and adverse currency reforms. In spite of surpassing gross and net revenue targets every month, tax revenues have fallen below the 2011 levels in real terms. The country's tax and non-tax revenue jumped to Z$22,971 billion while total expenditure grew to Z$22,534 billion. If the 2019 interbank rate for each month of tax collection is used, actual revenue comes down to US$2,691 billion and while expenditure amounts to US$2,480 billion. However it is common knowledge that market prices in Zimbabwe are informed by parallel market prices, which if used would further paint a gloomy picture on the revenue performance.


 
This means that the Zimbabwean Dollar depreciation and general economic contraction have seriously hit government pockets, thereby adversely affecting public service delivery and fixed capital formation. The change over to the local currency resulted in significant income losses for consumers and businesses as well. In 2011, a US$3,2 billion budget was presented to parliament by treasury and at the end, tax collections amounted to US$2,921 billion while expenditure totaled US$2,899 billion. That year the economy grew by 14.2% according to World Bank data while the government put the figure at 11.9%. Below is the further analysis of the tax performance:

Real Capital Expenditure
The government had budgeted to spend Z$2,036 billion on capital expenditure in 2019, however only Z$1,832 billion (US$210 million) was spent. Surprisingly Z$7.025 billion (US$790 million) was allocated for capital transfers that entailed payments for public transport (ZUPCO) and command agriculture subsidies. In 2011, capital expenditure amounted to US$255 million and 22% of the budget. The lack of investment in capital expenditure has led to stagnation in a number of key water and sanitation projects such as the Gwayi-Shangani Dam and Kunzvi-Musami Dam and piping projects. It has also led to the decay of critical public infrastructure such as roads, railways, health care and housing. The government has so far failed to provide any decent housing for victims of Cyclone Idai which left hundreds living in tents and surviving on donor aid. It is now 1 year since the cyclone hit Chimanimani and critical public infrastructure such as bridges, roads, schools and health facilities would have benefited from the country's real capital expenditure allocations. 

The Corona virus pandemic has so far exposed the country's capital expenditure deficiency with the public health care facilities all but collapsed. Public health care infrastructure facilities needed to fight the pandemic such as ventilators, running water, PPE and hospital beds have been neglected for a number of years. Zimbabwe is one of the few low income economies where the government spends millions of fortune in public funds on luxury vehicles and foreign trips for government officials year in year out while ignoring capital investments in basic health care, education and social services.

Civil Service Expenditure
Civil service expenditure for 2019 amounted to Z$4,985 billion (US$560 million). This means that there has been a devastating wage compression for the civil service where an average civil servant went home with less than US$1, 000 for the whole year. The grim picture means that a large portion of Zimbabwe's civil service now live in abject poverty and can no longer afford basic services such as adequate food, clothing, health care, insurance, transport services and education. Currently the lowest paid civil servant cannot meet half of his/her family needs as measured by the family basket which costs over Z$5,293 (US$212 using the interbank rate) as of February 2020. Therefore it is a fact that the budget surplus has been realized somewhat at the expense of the civil service who have been hit by the rise in cost of living. Subsequently the country is losing hundreds of its well-trained civil servants in health, applied and natural sciences, education, civil engineering, mining and other specialties.

Mounting Bad Debts
Zimbabwe's total external debts now exceed US$9,865 billion, with over US$6,284 billion being arrears to the World Bank, African Development Bank (AfDB), European Investment Bank, The Paris Club and other multilateral lenders. The country has not yet tabled any debt restructuring or clearance plan since the collapse of the Lima Debt Plan. As such Zimbabwe has lower national income and high credit risk which hinders access to any developmental funds for critical projects while high interest rates accumulate on debts every year. The country has to rely on mortgaging natural resources such as Gold and Diamonds at uncompetitive prices to get loans.

Credit has to be given to treasury on curbing monetary financing of the budget deficit through instituting open market operations for selling Treasury Bills (TBs) and suspending out of statute borrowings from the central bank overdraft. Domestic debt grew marginally in 2019 as opposed to the binge that occurred between 2015 and 2018. However a lot needs to be done on directing the country's finances to critical public infrastructure and social safety nets so as to manage growing poverty levels instead of funding unsustainable consumption subsidies, foreign trips and luxury lifestyles for top government officials. The country has regressed on the provision of living wages for its civil service and basic public services such as water, basic education tools, housing, health care and road maintenance. It is the above concerns that render the 2019 budget surplus a mere bookkeeping figure rather than a good omen.

A number of policies present realistic solutions to attaining sustainable budget surpluses that can spur economic growth. These include reigning in on funding extravagant lifestyles for public officials especially on foreign trips, hotel allowances and luxury vehicles. Elimination of wasteful consumption subsidies on fuel, agriculture inputs, wheat and cooking oil among others will ensure that government resources are directed on debt repayment, social services and investment in capital formation. Elimination of subsidies curbs the need for the central bank to expropriate foreign currency from struggling exporters and growing money supply in the act of reimbursing them in Zimbabwean Dollar. Money supply growth and inflation have had disastrous consequences on the Zimbabwean economy, from the private sector income losses to public sector revenue performance that affects public service delivery systems. Strategies to revamp the economy in agriculture, manufacturing and mining also present sustainable policies to increasing tax collections without resorting to cuts on capital expenditure or squeezing the poverty stricken civil service. Overall the country welcomes the budget surpluses provided businesses can stay afloat while creating jobs and Zimbabwean citizens do not slide into extreme poverty in a country so endowed with rich natural resources.

Victor Bhoroma is a writer and freelance economic analyst. He holds an MBA from the University of Zimbabwe (UZ). For feedback, mail on vbhoroma@gmail.com or follow him on Twitter @VictorBhoroma1.


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Source - Victor Bhoroma
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