Treasury Wednesday said cash budgeting would continue into the next fiscal year following disappointing results from the country’s first diamond auction last month, which failed to free fiscal space for a development budget.
Officially launching the 2011 National Budget consultative process, Finance minister Tendai Biti said the fiscal authorities have subsequently halved the value of the budget to $2 billion, more or less the same as the current one.
“We are still in the cash budgeting phase. No reserves. We are not printing our money. You cannot run any sustainable economy on a cash budget. It’s a nightmare,” Biti said.
“Unfortunately, we thought there would be serious revenue from diamonds. We only realised
$56 million from the sale of 1,2 million carats of diamonds in the first sale. Chiadzwa has proved not to be an Eldorado.”
Estimates put the value of diamond receipts from the country’s stockpile of about four million carats at $1,7 billion.
But this has since been debunked as overstated.
Under a cash budgeting regime, Treasury matches every cent spent with every cent receipted in fiscal revenue.
To instill this kind of discipline, government has stripped permanent secretaries of the right to authorise payments and centralised the role with every public payment now to be done strictly through electronic transfer.
Biti said the lower than expected earnings from diamond sales have forced fiscal authorities to cut their budget estimates, adding the country would continue to “eat what you killed” until revenue improves.
Although value added tax (VAT) performance is poised to surge as from the fourth quarter of the year as fiscalised electronic registers come into force, the taxation efficiency may not be enough to wring enough dollars for capital expenditure.
The country estimates it will need to spend $10 billion a year for at least four years to re-rail the economy back on track.
Biti said the 2011 budget would focus on the three R’s — Regenerating, Reviving and Refocusing (the economy) — but under more overly difficult financial conditions.
The country’s head of treasury said the 2011 budget has many additional requirements that include election and referendum estimated to cost $200 million, which may crowd out commitments to infrastructure and civil service salaries.
The minister said the country is still far away from reaching the $810 million that it was supposed to raise from cooperating partners, with $2,9 million having been raised in the first quarter of 2010.