Daunting job awaits Patrick Chinamasa
FINANCE and Economic Development Minister, Patrick Chinamasa, will present his mid-term fiscal policy review in the next few days against the background of increasing turbulence in the country which started with enraged cross border traders staging protests at the Beitbridge border post after government banned the importation of a number of basic food products.
Rioters torched a Zimbabwe Revenue Authority (ZIMRA) warehouse, protesting the inclusion of at least 40 basic commodities on a list of about 10 000 products that were affected by the ban.
The ban affected cross border traders, as well as ordinary consumers crossing the border to buy cheap products into mainly South Africa and Botswana.
With unemployment at nearly 90 percent and many Zimbabweans living in poverty, incomes have been so little that buying cheap groceries from South Africa or Botswana has cushioned many from an erosion of disposable incomes on the domestic market.
About 5,7 million people are estimated to be eking out a living from the informal sector, of which cross-border trading is one of them.
A fortnight ago, the country witnessed protests in the form of a work stay away as citizens agitated against a worsening economy as well as rampant corruption.
The protest led to a business shutdown, prompting organisers to call for another stay away protest last week.
Although last week’s protest was largely unsuccessful, people demonstrated their anger against government by besieging the Harare Magistrates Court to agitate for the release of Evan Mawarire, a pastor who had been arrested by police for mobilising people against government through stay aways.
Economists said the protests over a worsening economy presented Chinamasa, who is failing to pay civil servants in time due to dwindling revenue, with insurmountable challenges.
They blamed the economic woes on government’s failure to control its expenditure, which has been characterised by profligacy — spending on expensive automobiles and allowances for government ministers and other civil servants on useless trips.
“There is little appetite to control expenditure, yet there is appetite to spend,” said Kipson Gundani, chief economist at Buy Zimbabwe Trust, explaining that profligacy was the reason for current budgetary problems.
Chinamasa is currently making frantic efforts to ensure Zimbabwe repays US$1,8 billion in arrears to the International Monetary Fund, the World Bank and the African Development Bank with the hope that this would allow Zimbabwe to receive new funding to support the economy and government’s budget.
The country has been failing to access external funding to finance its operations for 15 years, largely due to debt arrears.
The country’s external debt is currently at US$10 billion.
This is only part of the problem.
The country has at least 100 parastatals, more than half of them a burden to the tax payer, but authorities have been unwilling to dispose them.
Harare has also failed to take advice and reduce a bloated civil service, which accounts for 80 percent of its expenditure.
On the investment front, there has been perennial uncertainties created by hostile and inconsistent policies.
Many investors are sitting on the fence.
In 2014, the country received foreign direct investment worth US$545 million, against US$4,9 billion for Mozambique, for instance.
But while the Finance Minister has been fighting to impress upon his colleagues to play ball, in the past few months, his decision to introduce bond notes has divided the nation, sent markets into a tailspin and precipitated heightened capital flight.
When the 2016 National Budget statement was announced nine months ago, the economy was already in turmoil, companies were closing, jobs were being lost, extravagance was rife and investors were already on the edge.
“And nothing has changed,” said Gundani.
“If anything, the situation has worsened,” he added.
Last week, ZIMRA said revenues for the second quarter were three percent below target after collecting US$866,96 million.
“We need radical reforms,” said Prosper Chitambara, chief economist at the Labour and Economic Development Research Institute of Zimbabwe.
“Government is bloated. This is not in line with our small economy. Chinamasa must consider privatising parastatals. More than 40 of them are a drain to the fiscas. If they were declaring dividends, government’s position would be better,” Chitambara said.
The ruling ZANU-PF party is already preparing for the 2018 polls, a situation that has traditionally resulted in more expenditure commitments.
Government is also unlikely to implement measures that may make it unpopular, such as cutting the size of the civil service and selling loss-making State firms to private actors.
But Chitambara warned that procrastination would further harm the economy.
“We are in election mode, expenditure will go up. We are likely to see a widening fiscal deficit due to underperforming revenues this year but that has implication on the domestic debt, which ballooned after government took over the Reserve Bank of Zimbabwe debt. But there is no will and commitment to implement these fiscal reforms,” he said.
He was referring to a US$1,35 billion central bank debt taken over by government in 2013.
He said areas requiring urgent attention included reducing Zimbabwe’s missions abroad, and even reviewing the size of the legislature, at least for now.
Chinamasa was in London this month on his latest global offensive to drum up support to rebuild the shuttered economy.
Long sufferings Zimbabweans were hopeful something would come out of the charm offensive.
In London, he was confronted by more anger.
Some Zimbabweans who fled the country’s economic crisis demonstrated against his presence in Europe, calling on foreign governments and investors not to give any form of assistance to Zimbabwe until it addressed corruption, economic mismanagement and a deteriorating political crisis.
Kingstone Kanyile, chief executive officer at Mtilikwe Financial Services, said the global charm offensive was necessary but the country must not expect funding in the next 18 months.
The current situation, he said, would result in increased domestic borrowing by government.
“But this will crowd out the private sector,” said Kanyile, who predicted that Chinamasa would revise his 2016 budget “because there is no way you can support it without budgetary support”.
“The ban on imports must be struck off, bond notes are not good for the economy,” he said.
The bond notes, which government said will be introduced to alleviate a cash crunch, have been seen as an attempt by government to bring back the Zimbabwe dollar, which was abandoned in 2009 due to a hyperinflationary crisis that buffeted the local currency.
Activists have vowed to campaign against the bond notes, which President Robert Mugabe described as “surrogate currency”.
The fear is that if brought back, Zimbabwe’s crisis could hit the depths touched in 2008, when the domestic currency suffered its worst assault and the economy experienced widespread commodity shortages.
In early 2009, Zimbabweans were at the crossroads, with many unable to buy food, send children to school, or find cash for transport to work.
The situation was saved by the adoption of a multiple currency system in 2009.
But the country is at the crossroads again, facing liquidity problems, an industrial catastrophe, painful deflation and stunted growth.
Will the bond notes resolve this?
Kanyile warns the introduction of bond notes would be catastrophic.
Chinamasa, who was the acting finance minister at dollarisation, is aware that bolder measures are required now than in 2009, and he needs to convince sceptical colleagues in government that it is time to move from a traditional approach to embracing more radical measures.
The current budget has no room for growth stimulating capital expenditure.
“We need to create fiscal space,” said Chitambara.
Gundani had said in an earlier interview: “All our problems require capital, and we have been unable to get it. Government is used to the traditional way of funding infrastructure but the world has moved from the public funding model to the private or commercial funding model. We have remained rooted in traditional economic structures.”
What then is the solution to the crisis? Should the country take the aid route?
“No,” said Gundani.
“The story of aid is known; Zimbabwe will not get anything. What is required now is some form of external (injection). FDI is coming slowly. We need the external shock.”
Clearly, Chinamasa, the man at the apex of Zimbabwe’s Treasury, is facing a daunting task.
The crisis crippling the industrial sector is mounting.
He has already tried to discourage imports, but tinkering with these is contrary to the spirit of the Southern African Development Community and the Common Market for Eastern and Southern Africa trade protocols to which Zimbabwe is a signatory.
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