Budget review demands Zanu-PF, MDC buy-in

seems to have been pre-empted by the minister’s recent pronouncements of how civil service wages impacted on the national purse.
In addition, the launch of the Medium-Term Plan seemed to have overshadowed any other event on the economic calendar.
It was always going to be a tough exercise to balance between the burgeoning wage bill and the declining revenue base as witnessed by the ever widening current account deficit in the first quarter of the year.

The political acrimony, which has been defining the inclusive Government since the Lusaka conference, which also included Zimbabwe on its agenda, was noticeable.
Mr Biti hinted on the imminent US$700 million deficit to arise after the employment costs jumped from 52 percent to 65 percent of total expenditure.
The irony of the whole economic state is that Zimbabwe is one of the lowly paying nations in terms of salary and employee benefits internationally.

It used to come as unusual news in the 90s when Botswana, Malawi and Mozambique depended on Official Development Assistance in the form of a vote of credit to support their civil wage bills.
As much as the Treasury boss might have vehemently opposed the recent salary hikes to the civil servants, the best option at his disposal is to balance his figures before he is remembered for being the first minister to announce an employment budget ahead of a national budget.

The good thing is he is one of the most determined ministers in the present Government whose language on economic issues resonates with a patriotic citizen who doesn’t believe Zimbabwe should remain where it is.
The problem with employment costs that exceed other expenditures, is that it erodes the sustainability of any nation’s development be it economic, social or technological. The immediate implication of such a high wage bill such as the one we are witnessing at the moment is it continues to distort or exacerbate the credit standing of a nation hence the credit risk. If a Government is spending its entire revenue paying its employees? Who is to pay the external debt, to capitalise the industrial sector and to build social safety nets for the vulnerable?

Minister Biti stated it clearly that the mining sector is found wanting when the issue of royalties and rebates comes into light, the Botswana economy is so linked to their diamond industry and in Zimbabwe, the precious gem is still receiving secondary preference. If the diamond industry in Botswana is contributing 85 percent to their fiscus, Minister Obert Mpofu cannot solely blame the Kimberley wrangle as a scapegoat. It is upon his brief to explain not only to the Cabinet but also the nation at large why an industry, which is contributing 25 percent to the Gross Domestic Product, cannot have traceable registers of tax contributions.

The contribution to GDP is mainly through employment and export receipts.
Minister Biti also introduced different funds to cater for different sectors of the economy. A US$30 million distressed fund to avert the wide deindustrialisation notably in cities outside Harare, US$50 million to the Small and Medium Enterprises and a further US$40 million housing fund which he expects to curtail on the housing backlog. The worry is the figure might not be felt once injected into the dry economy since an array of more pressing commitments remains severely undercapitalised.

The Treasury boss also bemoaned the significant decline in contributions by corporate tax to the fiscus from 19 percent of GDP same time last year to the current 10 percent. This marks an economic disaster considering that these are companies that had not paid up nor approached the Treasury with a different model on owning up their commitments. It is so astounding to see Hwange Colliery Company being mentioned among tax evading corporates, this is truly happening just by the Government’s nose. The tax collection outlook remains negative leaving most of the private corporates with a motive of following suit to avoid the tax.

According to the latest statistics by World Economic Forum, Global Foreign Direct Investment was valued at US$1,2 trillion with China contributing US$200 billion in terms of FDI receipts. Zimbabwe was sitting at US$110 million, which is even below the balance sheet size of one of the most uncelebrated banks in the land. This should leave the Government with a pounding heart on how to plug the anomaly. The

Indigenisation Bill, inspite of it being noble, has adversely affected the FDI levels and will continue impacting on the country’s potential revenue inflows. The minister hinted that the flow of tourist traffic into the land is not in coherence with the tourist receipts with hotel occupancy remaining depressed at an average of 42 percent across the nation.

The statistical body, Zimstats, needs an overhaul, opined the minister as the figures being churned out from the unreliable body continue creating discourse and confusion. It is one of the significant tenets of a serious economy to have a statistical agency that reflects conditions on the ground. It seems the statistics body never recovered from the days of hyperinflation when it stopped recording economic data. They remain overwhelmed even in the midst of a greenback that is hardly volatile. The Minister of Finance for any nation should be the last figure to express doubt on the official GDP figures but once this happens, the culprit remains Zimstats.

The absence of a clear and practical roadmap to exhaust external debt remains a challenge to the recovery of the economy, this coupled with high employment costs implies limited space for the Government to shift its focus. There is a positive correlationship between restructuring the central bank and its debt with solving the total debt problem. If the US$1,5 billion owed by the central bank is not tamed immediately, credit of the Southern African state will remain a thorn in the flesh. It is the same risk profile that will relegate the nation to the bottom ladder of FDI despite the natural endowments vested on the ground surface.

As much as Minister Biti’s budget is pointing the right direction, progress towards reaching Canaan will be more of a political role. The debt-ceiling debate currently going on in the US requires the effort of both the Democrats and the Republicans. The refurbishment of RSA infrastructure calls for participation of both the ANC and the Democratic Alliance, it is also true that the recent budget review statement demands both MDC and Zanu-PF buy in.