The Herald (Harare)

Zimbabwe: D-Day for Finance Minister

analysis

Life will be all about braving icy currents and enduring raging storms fortified only with pride and virtue. There is a bold need to revive the economy. The road ahead is not for the faint hearted or for those who prefer leisure over work. This afternoon will see the Treasury boss plying the Sam Nujoma Street/Nelson Mandela Avenue route to the August house to present Expenditure and Income projections.

His 2012 Budget was premised on the theme "Sustaining efficient inclusive growth with jobs". It had been a Budget laced with mediocrity and ambitious programmes which could not be completed in the given time period. This a day we are expecting a US$3,8 billion Budget envelope, and the earlier he realises that such is meagre sum that it can't have a stimulating effect on the income growth of the economy.

The continuous dominance of recurrent expenditures will continue dampening and crowding out any potential for positive gross fixed capital formation. With a civil service population of around 235 000 people gobbling about 63 percent of the expenditure bill, the implication is the government has been directing its resources towards 1,90 percent of the population which is haven for gross tax evasion and avoidance.

Zimbabwe has one of the smallest Budgets in the world and the emphasis should be on attracting funds outside the budgetary trajectory. For a population of around 11 million to rely on a US$3,8 billion resource base against an external debt of around US$10,7 billion is an obvious recipe for an economic recession. The income multiplier effects impact have been limited considering that VAT is a dominant component in our revenue sources' profile. The nation remains a consuming one with little or no progress in terms of investment spending. To have a capital expenditure allocation of US$800 million against a current expenditure framework of US$3,2 billion is clear testimony that the nation is in desperate need for FDI.

The annihilation of an interest rate policy has seen domestic investment being suffocated. Most financial institutions have been turned into conduits for accepting deposits without any credit creation process in motion. The looming 25 percent capital requirement deadline by the central bank has seen most banks resorting to hijacking and siphoning culture of maintaining the loan book without any shareholder value being maximised.

Zimbabwe remains an over banked market and the last African top 200 banks survey which had seen not a single Zimbabwean bank qualify is a mirror image of how banking had gone to the dogs in a once vibrant and robust financial services sector in sub-Saharan Africa. Moral suasion had dismally failed and the existence of fundamentally weak banks makes the scenario worse as any attempt to forcibly revise the interest rates downwards will render them insolvent.

This is a Budget, Minister Biti is to clearly define the interest rate policy which becomes a panacea for the revival of the money market. The world over the interest rate transmission mechanism has far and wide reaching implications to the equities, bonds and forex markets considering it is the source of arbitrage and speculation. The failure to modernise the local bourse has also contributed to low appetite by foreign investors as the open outcry system will leave the ZSE as a dinosaur market founded on the principles of financial dormancy and technological incapacity. The 2013 Budget is expected to see the completion of the demutualisation of the ZSE and the emergence of the automated trading systems. A joke doing the rounds is that if you throw a stone in any of the stock broking firms in the country, you are bound to hit a CFA charter holder.

This is clear testimony that human resources has been advancing ahead of the trading infrastructure, which will make supervision of the trading sector a mirage cum torrid experience. The growth forecast has been revised downwards to slightly above 4 percent which is quite justifiable given the slackening recovery after the dollarised environment reached a plateau in the first quarter of this year. The attempt to come up with a stimulative fiscal policy looks meaningful on paper but impossible in practice as the informal sector has a greater co-efficient in the determination of the economic direction.

Since February 2009, no fiscal policy had managed to deal with an informal economy while at the same time it contributes more than 25 percent of GDP. In a sense Minister Biti's job seems to be targeting those in the formal sector which will continue raising poverty levels since the capacity to provide public goods will be diminished while the desire to become a "full time free rider" reaches fever pitch. Let us have a policy document whose taxation thrust will also be applicable to someone in Magaba or some other lowly developed area of the city.

There's a new phenomenon which Zimbabweans had gotten used to, of economic growth without jobs. To announce a Budget which does not have a ambition to create jobs when unemployment is above 85 percent is a true model of sunset politics. Not a single Zimbabwean will be expecting a capitalist Budget this afternoon, a Budget incapable of revamping the public health system. The irony of freezing jobs in the health sector when the budgetary health allocation per capita had reached nose dive levels is tantamount to building a mortuary just adjacent to a classroom. This is simply because the highest literacy by Zimbabwe in Africa can't explain why health conditions are in shambles, knowing well that Dr Henry Madzore promised manna from heaven when he took his oath of office.

There has been a trade off between the Medium Term Plan and the intervening Budget statements. It will be quite better to have a Budget which focuses on social safety nets ahead of the over emphasised economic growth Budget. Let it be a Budget biased towards education and health as it is crystal clear that US$4 billion does not have a significant capacity to create jobs. A stroll at Parirenyatwa or Harare hospitals will require an urgent approach as the conditions are so dilapidated, with staff shortages so apparent a feature in the day to day management of the institution.

The 2013 Budget is obliged to address the external debt problem as the status quo won't make it possible to revert to our own currency. A yawning trade deficit of close to US$6 billion per annum, lack of investment spending and a heavily undercapitalised central bank are all supply side factors which will continue postponing any discussion on doing away with the multicurrency system. Unfortunately, not a single aorta of literature in the four Budget statements had proffered mechanisms on how to revive the local currency.

The 2013 Budget statement is unique in that it will be covering elections, a constitutional referendum and a gloomy job outlook. The last Budget to resemble this one was the 1999 one, the major difference being the unit of currency on which the Budget will be announced. This is the afternoon Minister Biti is expected to sound like a technocrat and not an ambitious politician.

Christopher Takunda Mugaga is an economist; he is also the head of research for Econometer Global Capital, a regional finance and economic research firm. He can be contacted on: chris.eceonometer@gmail.com or 0772 340 353.

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