4 October 2008
analysis
ZIMBABWE needs to allow the national budget to fund all activities and stop money printing if the country is to chart an economic recovery path, a document by a United Nations agency shows.
The Comprehensive Economic Recovery in Zimbabwe document, undertaken by a team of eminent economists in the country for the United Nations Development Programme (UNDP) said the immediate priority is to terminate all quasi-fiscal operations and incorporate them into the national budget.
"There is broad, though not complete, agreement that, because Zimbabwe's hyper-inflation is directly attributable to fiscal expansion and reckless credit creation by the central bank, the starting point for a stabilization programme must be a combination of fiscal retrenchment and monetary constraint," it said.
In the absence of balance of payment support from multilateral institutions, Zimbabwe has been funding its budget since the late 90s. As revenue dwindles due to the harsh economic conditions, expenditure has recorded an upward trend as government failed to live within its means. This has necessitated the need for supplementary budgets which are usually 10 times larger than the original budget as inflationary pressures take their toll.
UNDP said all quasi-fiscal activities of the central bank should be terminated.
"The immediate priority is to terminate all quasi-fiscal operations and incorporate them into the national budget, as was tried in 2007 but abandoned in the 2008 budget," it said.
It said that at the outset of the stabilisation programme expenditures currently undertaken by the Reserve Bank of Zimbabwe (RBZ), including lending, interest and exchange-rate subsidies, must either be discontinued or financed by transparent transfers from budget account.
However the report doubted the sincerity of the government in ending quasi-fiscal activities.
"Although the immediate cessation of all quasi-fiscal operations by the RBZ ought to be the top priority in a stabilization programme, the Government of Zimbabwe Short-Term Economic Stabilization Programme (July 2008) makes no reference to QFA operations," it said.
In the near-term, the report said, the main spending cuts will have to come from the quasi-fiscal "budget" with potentially severe knock-on effects in agriculture, parastatals, general government spending, importers and the financial sector.
"However, the IMF suggestion that there is scope for a substantial reduction in the public sector wage bill needs to be treated cautiously, given the security and crime risks inherent in sudden reductions in military spending and the heavy costs of terminal benefits, early retirement packages and retraining and re-skilling programmes," it said.
The UNDP document, which comes after the political parties agreed to a power sharing deal paving the way for the formation of an inclusive government, will be met with resistance from the government that has benefitted from quasi-fiscal activities. Attempts to cease quasi-fiscal activities have been met with rebuke from political leaders. Announcing the 2007 National Budget, then Finance Minister Herbert Murerwa said all quasi-fiscal activities would be accommodated in the budget.
Murerwa said then: "In this regard, combating inflation will require the phasing out of all quasi-fiscal operations and adequately providing resources for prioritised expenditures within the Budget."
This was met with rebuke from President Robert Mugabe, who said the Treasury was practising bookish economics.
"They have this word they like using; 'quasi, quasi, quasi'. But I tell them that this is expenditure that we need," President Mugabe said.
"We are under sanctions and there is no room for the type of bookish economics we have at the Ministry of Finance."
Read comments. Write your own.
Copyright © 2008 Zimbabwe Standard. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
Murderer Mugabe is in an advanced state of senility. His cronies, however, describe him as being most brilliant, the only hero challenging the Brits and the yankees!
Just ask Quadaffi how only one yankee missile shup his mouth for eternity! He lost a child with the missile hit.
But was it cowardness or pragmatism that he did not take the war to the yankee soil?
Gono is anyway continuing to print more notes that are worth less than the face value of toilet paper. he thinks he is fueling lunatic Mugabe's war against the Brits and the yankees??
Mugabe and… [Read Full Text]
Prem, you may find that even Gono has channeled and stashed Zimbbwe's money in foreign and other African banks.
Mugabe is clueless.