Biti's voodoo inspired stone age budget

The eyebrows of tsikamutandas were probably raised by the Finance minister, Tendai Biti's opening paragraph which set the tone for his voodoo-inspired stone age budget speech.

The finance minister's belief in voodoo economics was clearly captured in his witting or unwitting reference to the so-called "triple demons" upon whose doorsteps he placed all the blame for what he alleged to have been a daunting task (i.e. preparing the budget). As if that was not enough, the finance minister went on to use a maxim borrowed from the hunters and gatherers of the stone age era,: "we eat what we kill". This was meant to convey the the minister's supposed adherence to austerity measures and his embracement  of risk averse principles alongside a balanced budget. But as shall be seen hereunder, the minister's budget went against these very principles in a big way.

Apart from the finance minister's ritualistic obsession with voodoo and stone age ideas (when we live in a  high-tech 3-D information age) the budget speech was deficient in many areas that are supposed to be central to the financial and fiscal livelihood of the country. The length of the speech was not only  mind-boggling but also perplexingly befuddling with a lot of repetition for certain sectors like agriculture. The other area where Biti is peerless is in his legendary misuse or misapplication of words in inappropriate areas where their meanings get twisted and eventually lost in the detail leaving one flummoxed and disoriented. Reading through Biti's budget, one gets the impression that Biti subscribes to Robert McCloskey's:  "I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant". A budget speech is meant to be understandable and informative to people of all walks of life ranging from poor pensioners in rural Tsholotsho to the affluent in Borrowdale.

In paragraph 62, Biti asserts that it is important to continue executing an "anti-cyclical macro-economic policy framework" without explaining how he will do so or what specific policies are these. In the very next paragraph (63) Biti contradicts himself. He states that because of the country's limited access to "external financing", there is a need to "re-build fiscal buffers".  Biti seems to be inadvertently unaware that you can only "re-build" what you previously had. Many generations of Zimbabweans do not recall the last time the country had "fiscal buffers". By fiscal buffers he meant readily available foreign exchange reserves to meet the ongoing operational needs of the economy. Even the most pedestrian observer of the Zim economy knows only too well that the country has been bankrupty for ages. Therefore Biti's assertion that he wants to  "rebuild" such fiscal cushion is a hubristic exercise in futility.

In  the same paragraph per above, Biti states that this limited access to external financing is the cause of his continued maintenance of "the SDR" as a reserve.  This is contradictory because the SDR is from "external financing". An enlightened finance minister would have had the decency to tell the nation what the SDR is and where is it coming from. The SDR is a Special Drawings Right that is made available to member countries by the International Monetary Fund (clearly a source of external financing contrary to Biti's assertion). The SDR is therefore a quasi-cash financial instrument used by the IMF to fund its members. It is a liquid form of currency and is tradable in the markets with relative ease.

Zimbabwe's current economic and financial system hinges around the credibility of the multicurrency system that was introduced, ironically by Biti's predecessor Patrick Chinamasa in his 2009 budget speech, in which he outlawed exchange controls, outlawed price controls and introduced the present multicurrency monetary regime. It is worth noting that Biti did not make any policy pronouncement on this critical issue which is the bedrock and mainstay of the Zim economy in general and the financial system in particular. In his previous midterm budget review speech, Biti had pronounced that the multicurrency regime would prevail  "until at least 2012". One does not need to be a rocket scientist to know that heretofore, investors have been making their investment decisions with their eye on the possible extinguishment of the multicurrency system by 2012 per Biti's previous assertion.

This is the the kind of confusing statements coming out of Biti's budget speeches, i.e. the fact that the multicurrency system would be in place "until at least 2012", and then when the 2012 budget is announced, nothing is said about this critical policy issue.  It is grossly irresponsible and a near dereliction of duty for Biti to be silent on such a monumental policy issue which is central to the economic and financial well-being of the country. You can not be a finance minister (hoping against hope that you will be taken seriously) and then relegate such a vital issue like multicurrency system to the ignominy of a footnote in your budget speech.

An informed minister of finance would have highlighted in his budget speech that the current financial and fiscal stability that the country is enjoying derives from the multicurrency system, the absence of exchange controls and the free floating prices and the fact that there are no exchange controls.  Biti was supposed to offer leadership and guidance to the nation on this particular issue so that even wayward and perennially errant bureaucrats can begin to understand the virtues of austerity and the wisdom of fiscal frugality.

Consequently, his budget speech was supposed to unequivocally and unambiguously pronounce on the future direction of :

(i) the multicurrency system,
(ii) the absence of price controls, and
(iii) the absence of exchange controls. 

It was also supposed to answer the the following questions:

(i) How long will the current policies last, given that they are doing wonders to the economy? 
(ii) Are these policies sustainable and therefore maintainable ad infinutum?
(iii) Is the government going to force prophets of doom to eat humble pie by permanently adopting these wise policies? 

These are issues that investors and ordinary people want to hear from a finance minister worth any salt notwithstanding his ideological stripes. The fact that Biti's budget speech was completely silent on these key policy issues reduces his budget to a farce and consequently makes it worse than useless in the eyes of investors. The budget was also conspicuously silent on topical issues like the ongoing forcible handover of 51 percent of corporate shareholding to indigenous people.

Returning to Biti's reference to "we eat what we kill" phenomenon, this was presumably meant to imply the adoption of austerity measures that would curb fiscal profligacy and the possible precipitation of the nation into the financial debt abyss. In a spectacular case of contradistinction to his own dark ages maxim that: "we eat what we kill", Biti then descended into his disorienting rigmarole about leveraging the country into debt through facilitating lines of credit to the economy. Biti does not seem to understand that lines of credit, credit facilities, offshore facilities and leveraging are all  debt-inducing instruments,  hence any utilisation of these is a violent vulgarisation of  the  "we eat what we kill" philosophy.  The move by Biti to leverage the economy and embrace all manner of foreign debt facilities (when other countries are deleveraging, i.e. paying off their debts and cancelling such lines of credit) has the effect of reducing his budget into,  (in  Biti's own words)  "a grotesque ritual in irrelevance".

Then there is Biti's infatuation with the misuse or misapplication of words which is breathe-taking in its pervasiveness. He needs to be told that the word "leverage" denotes debt or the extent of borrowing. Contrary to what the word leverage means, Biti uses it recklessly to refer to subsidising agriculture, mining and other areas where the government wants to play a role in its capacity as a part owner of some of these businesses. In finance, leverage or gearing refers to the extent of borrowing or usage of financial instruments to achieve gearing , and, therefore it must be construed and intepreted in that context, more so by a finance minister.

Equally absurd was Biti's reference to what he alleged to be "monetising" the Global Political Agreement.  Biti needs to be told that financing the GPA and its programmes is not tantamount to "monetising" the GPA. These are two different and distinct phenomena which must not be confused with each other.  Monetising refers to converting something into an acceptable currency (i.e. money). A typical example was the end of the gold standard  and the adoption of fiat money (paper money) in the early stages of the previous century. That was the era when debates were dominated by the issue of bi-metalism (i.e. simultaneous "monitisation" of both gold and silver as money).

Adherents of the gold standard argued vigorously that their opponents wanted to "monetise" silver and thereby cause inflation because silver was everywhere in abundance. If there is anyone out there that Biti listens to, can that person please tell him that financing activities of the GPA is not and should not be construed to be "monetising" the GPA. Monetising means a totally different thing altogether.

Another strange and potentially scandalous entry I saw in Biti's budget is the proposal to create a "credit rating bureau" (CRB) ostensibly to verify individuals creditworthiness. This is a premature and overzealous exercise given the fact that the country is emerging from a financial orgy of speculation and the vagaries of uncertainty. Firstly no one in Zimbabwe has a kosher credit record. This ranges from the government itself that reduced the economy to the abyss, the banks that melted depositors money into thin air, to the violently expropriated properties whose new owners can not be said to be of sound credit records by any stretch on one's insane imagination.

The crisis left everyone everywhere jointly and/or severally indebted to the next person implying that everyone's credit record is blemished. Almost everyone in Zimbabwe invariably has a derogatory entry in their credit records due to circumstances beyond their control.  Such an agency (CRB) will only cause unnecessary mayhem to the already embattled citizens who are trying to re-set their livelihoods.  Moreover, in a country where the security services tend to confuse and straddle their constitutional duties with being instruments of terror, such credit bureaux will be used by the overzealous elements within the security fraternity to extract details of peoples' confidential information and abuse it to an extent that Biti will live to regret. Biti could go down in history as having been culpable and complicity in the ensnaring of people and hence the inadvertent stifling of freedom through his ill-conceived and premature institutionalisation of a credit bureau which can only serve his narcissistic desire for relevance.

Notwithstanding his somewhat reckless omissions, Biti managed to correctly recognise what he observed to be a clear "anti-Harare" sentiment out there in different parts of the country, adding that people wanted to see decentralisation of services to the provinces and districts. But this observation is strangely contradicted by Biti's own words in the same budget speech where he conspicuously lists "devolution" of power as being one of the risks facing the country's financial and economic well-being. This is menacingly strange and it is perhaps stranger than fiction that he can list "devolution" of power as being a risk to the economy. When juxtaposed against the anti-Harare sentiment, one would have thought that devolution of power is a necessary positive driver of the economy rather than a risk as cited by Biti.  

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Colls Ndlovu is an independent financial analyst and can be contacted on wabayi@hotmail.com