16 November 2012

Zimbabwe: Budget - Back to Deficits Era

THE budget presented Friday by Finance minister Tendai Biti revealed what many feared: we have slipped back into the bad old days of incurring budget deficits.

After having started off well and maintaining a balanced budget for the bulk of his term in office, Biti has dropped the baton towards the finishing line. We have once again begun to live beyond our means -- spending more than we earn, and to use Biti's own words, we are "killing a rat and eating an elephant".

That is most unfortunate. Admittedly, Biti's hands were tied with the never-ending story of the disappearing diamond revenue on which he had pinned the nation's hopes. From close to US$600 million earned by the diamond industry, Treasury has only received a paltry US$40 million.

This in spite of the fact that out of this global figure there was not only various amounts of tax revenue expected but more importantly dividend revenue since government has more than 50% shares in four of the major diamond-producing companies in this country in Chiadzwa: Marange, Mbada, Anjin and DMC.

The $64 000 question remains: Why is the diamond revenue apparently not reaching the Treasury in full? If this conundrum is solved, it will certainly go a long way in addressing the deficit issue.

Biti also needs to plug the leakages from Zimra, where we are only receiving a paltry 4% of expected revenue from our huge import bill, as he said we only export US$1 for every US$3 we spend on imports.

However, let us note the main drain of our resources; civil servants' wages, accounted for 73% of the expenditure, up from of 60% last year.

If the budget outturn for 2012 will indeed be US$3,5 billion against a US$300 million shortfall that means we have overshot our expenditure by 11,7%.

That's way above any average provision for contingencies. However, as a percentage of GDP the deficit would be 2,6%, fairly reasonable if we knew how we would finance the deficit.

Prior to 2000, most budget support was in the form of grants and subsidies from the international community. Biti lamented that much of international support now went directly to specific projects and would be channelled via Treasury.

Biti may be pinning his hopes on his October 21 discussions with the IMF and World Bank in Tokyo where the world's two leading financial institutions lifted moratoriums on financial support to Zimbabwe.

On controversial issues, Biti has proposed playing hard ball with the banking sector, in a manner reminiscent of the Gideon Gono era. In particular he accuses foreign-owned banks of being outward looking and detached from the development needs of their host country.

Intervening in the markets for the first time, Biti has compelled a 4% per annum interest rate payment for deposits above US$1 000 over three months. He has also decreed that salary deposits less than US$800 must not attract bank charges.

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