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Govt's deficit spending continues unabated
Felix Njini, Financial Gazette (Zimbabwe)
July 29, 2004

http://www.fingaz.co.zw/fingaz/2004/July/July29/6102.shtml

ZIMBABWE’S budget deficit, which has averaged 10 percent of gross domestic product for the past decade, shows no sign of abating unless swift remedial action is taken against the government’s insatiable appetite for funds.

Indications are that the government, facing competing demands on the fiscus, is unlikely to bite the bullet and sate its appetite for spending, which has fuelled inflation and a ballooning domestic debt.

The government’s rampant spending, worsened by the need to import food, fuel and fund elections, is expected to widen the budget deficit beyond its $1.41 trillion target.

In his mid-term fiscal policy review, acting Finance Minister Herbert Murerwa said the budget deficit stood at $678 billion after the first half of the year, against a full-year target of $1.41 trillion.

Economic analysts raised fears that public expenditure would shoot beyond the target, citing the government’s record of fiscal indiscipline, the forthcoming elections and continued parcelling out of billions of dollars to pathetically performing parastatals in the form of debt relief.

Murerwa, who did not give details as to where the $678 billion had gone, hinted that the fiscus was under pressure from some government departments.

"While government remains committed to prudent expenditure management, as demonstrated in the first half of the year, the budget continues to be confronted by numerous requests for additional unbudgeted funding.

"These are inconsistent with government measures and targets to further lower inflation," Murerwa said.

Analysts said expenditure was still consumptive, with insignificant funds being channelled towards capital development.

Parastatals are still draining the fiscus despite assertions by the government it had stopped handouts.

Economist Danny Meyer said the government’s record of fiscal discipline was pathetic.

Meyer said the government had failed to respect budgets for over a decade, contributing to Zimbabwe’s economic woes.

Analysts have been calling for a budget that reins in government spending while giving direction to the country’s long-rudderless economy.

"This is the same government which has failed to spend within its limits. I do not see them changing now, especially considering that they are fighting for political survival," Meyer said.

Previous finance ministers have been reluctant to give handouts to parastatals, yet the leadership in those companies is still assured of funding and has not curtailed expenditure.

The government’s reckless spending is despite the country’s worst economic crisis ever, characterised by chronic foreign currency shortages, a 70 percent unemployment rate and record inflation, which peaked at 623 percent in January but has since slowed down to around 395 percent.

Apart from slashing expenditure, the finance ministry should punish errant ministries for budget overruns, one of the chief causes of Zimbabwe’s economic woes, the analysts said.

"Parliament must show that it has teeth and that it can bite. Culprits have to face the risk of losing their jobs if expenditure is to be controlled," Meyer said.

He warned the government and monetary authorities of the risk of becoming "big brother waiting with a fat cheque book to bail out parastatals, perennial crybabies".

The government has shown little inclination towards development of roads, dams and street lighting. Even government offices are in a state of great disrepair, with little renovation being undertaken.

But it has insisted that an economic turnaround was on the cards, though critics dispute this assertion, saying there was no evidence of a recovery.

The economy is expected to shrink by 8.5 percent in 2004. It has been contracting at an average rate of 10 percent during the past three years.

Tony Hawkins of the University of Zimbabwe’s Graduate of School of Business accused the government of not divulging its expenditure patterns.

Hawkins said unbudgeted expenses were one reason why the government ended up in budget overruns.

Trust Holdings group economist David Mupamhadzi noted that while the government, for the past six months, had managed to spend below target, the overall performance of parastatals was still a cause for concern.

State-controlled enterprises have been shying away from the productive sector funding introduced by the central bank to bail out ailing firms.

"The challenge is for the fiscus to balance political and economic considerations. It also depends on the overall performance on revenue side, behaviour of inflation and whether ministries are not going to come and ask for supplementary budgets," Mupamhadzi said.

"But the major worry is the performance of parastatals. So far only four have applied to utilise productive sector finance," he said.

Parastatals are shying away from the productive sector facility mostly because their accounts have not been audited for the past four years.

Erich Bloch, an economic commentator who sits on the central bank advisory board, concurred that the government was spending very little on capital projects.

Bloch said the health, education and foreign affairs ministries were gobbling most of the money.

The analysts said a return to the rule of law and market-driven policies would attract international assistance, which might curb the government’s over-reliance on the domestic financial sector.

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