Yesterday, we carried two stories in which the World Bank (WB) and the International Monetary Fund (IMF) implored the government to cut the cloth according to size in a bid to help grow the economy.
Comment: NewsDay Editor
In the latest report, Macro Poverty Outlook for Zimbabwe, they warned that the gradual deterioration of economic conditions could rapidly escalate in the absence of a strong fiscal adjustment programme.
It said fiscal adjustments such as cuts in compensation benefits or wages of the public sector could narrow the central government deficit to 4,8% this year from 10% in 2016.
According to the WB, revenues are already over 25% of GDP and the public sector accounts for more than 50% of GDP, leaving little scope for further increase.
The report added fiscal adjustments posed a challenge in light of next year’s elections.
In its report after the annual Article IV consultations, the IMF also indicated that excessive government spending, if continued, could exacerbate the cash scarcity, further jeopardise the health of the external and financial sectors, and, ultimately, fuel inflation.
The organisation implored the government to put measures that would cut spending pressures stemming from high employment costs, government transfers to support specific economic sectors, and elevated discretionary expenditure.
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We call on the Treasury to take heed of the sound advice by the Bretton Woods institutions if Zimbabwe is to pull out from this man-made economic quagmire.
The rule of thumb is that the government has to eat what it gathers. This has worked before especially during the inclusive government when then Finance minister Tendai Biti applied the balanced budget thrust when he was in charge of the government’s purse.
But, his successor Patrick Chinamasa is in a fix as he has to ward off hawks within Zanu PF that have been pushing for populist policies such as payment of bonuses to the civil service.
It is clear that government is constrained by resources in the absence of budgetary support from multilateral institutions. This requires fiscal discipline.
The closure of companies has also affected revenue inflows. Companies that are still open are struggling to stay afloat and owe the revenue collector in unremitted value-added tax and pay-as-you-earn.
Given the tough economic environment, there are fears the government will throw fiscal discipline out of the window ahead of next year’s elections for Zanu PF to win at all costs.
We believe the uncontrolled spending has seen government borrowing from the domestic market, thereby crowding out the private sector. The rate at which Treasury Bills have been issued is alarming.
What this means is that banks prefer holding the Treasury Bills to lending to the productive sector, thereby choking the growth of the manufacturing sector. This will have ripple effects on revenue inflows to Treasury coffers.
