Back to Index

Weekly economic bulletin
Crisis in Zimbabwe Coalition
December 07, 2007

Budget, Workers, Economy living on steroids!!!

Deepest apologies to loyal readers of The Economic Bulletin for the short disappearance of your favorite economic analysis space, it was due to factors beyond our control. The paper was going through a metamorphosis of re-branding to offer the best insights on the state of our economy. The new look bulletin will be unveiled by the 1st of January 2007.

Introduction

In this week's edition, we take carry out a close analysis of the budget as a critical fiscal policy tool at the disposal of functional economies to effect sustainable economic growth, increase the worker's disposable income, and enhance the firm's capacity to supply and the realization of improved standards of living. In light of the budget presentations by the Minister of Finance on Thursday, 30 November 2007 we also prescribe some of the modalities which the government can effect if the economy is to be rescued from the precipice of its demise.

Economy surviving on steroids

It can be argued that Zimbabwe's economy is being held by a pendulum of a thread of steroids. This has been exhibited frequently by the policy compulsion at various levels of macro economic management. In the process, the blood lines of the economy, namely the industry, manufacturers, and retailers, to name a few, have been declared state enemies alongside inflation.

This has created an economy which is sustained by the invisible manufacturers. As of today, 28 November 2007, Zimbabwe does not have a currency. The government relies on printing money in order to purchase the much needed currency on the black market. This is the first grade of steroids which the country is being sustained by.

Another cancerous steroid sustaining the economy is the gap between the checks and balances of the fiscal and monetary policy. This gap has led to the economy grappling on its death bed. It has led to the government failing to regulate its consumption behavior. The country is living on borrowed times. Unlike the firms which borrow to invest, the government borrows to consume. To this the country is surviving on a domestic debt of $ 8 050.3 billion and external debt of US$4,4 billion as of August 2007[1]. The steroids are actually chocking the addictive government, if this mindset of government is not taken to a rehabilitation centre sooner than later, it with lead to catastrophic ends.

The government is therefore in a quagmire reforming its consumerist approach and restitutes the prudent fiscal procedures that are aimed at curbing the unnecessary inflationary pressures on the national fiscus. We need to clean out the steroids which have become the pushing force of economic deterioration for the past decade.

The Budget

The Zimbabwean budget is a responsibility of the Ministry of Finance. It is a culmination of the fiscal policy which is by and large a boarder macro technical domain responsible for the general management of the broader economic issues of the economy. The monetary policy is a narrow technical domain on the technical tools to curb the money supply of the economy. The aggregate goal for both tools, fiscal and monetary policy is to manage inflation as a panacea for economic development.

However, Zimbabwe's budget statements have not been in conformity with the international standards of budget presentations, punctuated by the annual budget deficits for the past decade. Budget deficits are not healthy for economic growth. High government borrowing entails an opportunity cost to the private sector investment, and high debt interests payment restricts the ability to invest in other sectors such as education, health and infrastructure investment.

There is a need for fiscal policy consolidation as a remedy to the uncontrolled consumptions approach by the incumbent government. Fiscal consolidation is when the government concentrates its energies on achieving concretionary economic models, which encourages and stimulates the supply side to outstrip the demand side of the economy.

Unchaining the suffocating hand on the country's economy

The budget presented a predictable policy dissonance which is supposed to carry the ministries to the next financial year. It failed to take into consideration both the industrial and households expectations which among others include:

Industrial expectations

• Incentive fund to fuse capital circulation in the organizations which were affected by the price blitz so as to stimulate the supply side of the economy
• Devaluation of the dollar to stimulate exports and procurement of the scarce commodities such as fuel, electricity and basic commodities
• Statement of confidence on the property rights which are under threat from the Indigenous Bill.
• Reduction of government expenditure through streamlining the ministries among others

Households' expectations

• Increase of the non-taxable income to match the poverty datum line
• Reduction of tax bands on the basic commodities
• Salary increments for the civil service to match the poverty datum line
• Subsidies on the public transport to cushion them from the current transport crisis
• Dual configuration of the monetary and fiscal policy to address the cash crisis affecting the country.
• Increase in budget allocations to fundamental institutions such as health, education among others

Workers are wallowing in a deep slumber of poverty as their income is fast eroded by the hyper inflation levels before they even earn the salaries. As such, the non-taxable bracket must be reviewed in tandem with the inflation rates, if the workers are to be cushioned from the crudities of economic meltdown. Workers deserve a better remuneration system than the current situation where they are paid salaries that are not in tandem with the inflation levels in the country.

When the country's macro economic tools such as the budget fail to address such critical issues, it is an indication of the depth of the economic crisis which is bedeviling the nation. Automatically, the people entrusted to run the economy on behalf of the stakeholders are no longer serving the respective stakeholders. Both the households and firms' needs are not being addressed hence; the only logical conclusion is that the government is serving its own personal interests whilst the economy is bleeding.

This year's budget is a statement of surrender by the authorities. They have run out of ideas of what needs to be done. They must relinquish power to a handsome crop of able bodied people to take over the reign and start effecting the social, political and economic reforms which the people of Zimbabwe are yearning for.

Way forward

The old adage is on record stipulating that if someone is in a hole, the first and critical stage is to stop digging further. The first effort towards addressing the deep seated crisis in the country is that of halting the unproductive and unnecessary government expenditure. Government should live within its means and be disciplined in adhering to the allocated budget lines. As noted from the budget presentation, there is more than 1 trillion budget deficit before the ministries start receiving their chunks; this shows that the economy is still living on steroids. It needs rehabilitation and vaccination to ensure its total healing

Secondly, the government needs to address the supply side of our economy. This has not been made any better by the price blitz which led to the business community loosing confidence in the country. Commodities have disappeared from the shelves, stimulating the demand pull inflation which is a function of demand outstripping supply. A vicious circle of inflation will be created. We are stuck in the bubble of hyper inflation, from the look of things, the government is still interested in increasing its consumption and picking figures form the blues arguing that inflation will fall to 1 978%.

As the Coalition, we call upon the government to be inclusive in the management of the economy. The private sector, civil society and workers must be consulted when the government is preparing critical documents like the national budget, failure of which will lead to mediocre documents under the pretence that they are national budgets. In essence there is nothing neither national nor budgetary about a group of people sitting as if they represent the nation and presenting a document with a deficit of more than 1 trillion. It is time to act responsibly.

[1] http://allafrica.com/stories/200710090065.html

Visit the Crisis in Zimbabwe fact sheet

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP