Quasi-fiscal activities and the economy


Guest Column: David Mhlanga

Following the clash between the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya with the Public Accounts and Finance Committee over the definition of quasi-fiscal activities that the central bank is carrying out, this short article will help give the definition of quasi-fiscal activities as well as proffer examples that are informed by the International Monetary Fund (IMF) and the International Budget Partnership (IBP), including many other sources. After reading, people should be able to judge whether the RBZ is involved in quasi-fiscal activities or not.

According to the International Budget Partnership, quasi-fiscal activities are any activities undertaken by State-owned banks and enterprises, and sometimes by private sector companies at the direction of the government, where the prices charged are less than usual or less than the market rate.

Quasi-fiscal activities are usually undertaken at a loss or below the usual rate of profit. Thus they could, in principle, be replaced by specific taxes, subsidies, or other direct expenditures that would have the same net effect on the price at which these services are offered, but bring them onto the budget books.

The important point to note with quasi-fiscal activities is that like tax expenditures, quasi-fiscal activities present hidden expenditures. They are often invisible and tend to benefit narrow groups. Mostly, every effort should be made to eliminate them, but at the very least, they should be reported on transparently, and their fiscal impact measured

Examples include subsidised bank loans provided by the central bank or other government-owned banks, and non-commercial public services provided by State-owned enterprises. A typical example would be State-owned enterprises providing fuel, electricity, or water at below market prices, thus providing an implicit price subsidy. If not clearly included in the government’s financial reports, quasi-fiscal activities are a particular type of extra-budgetary transaction.

The IMF has provided the following outline of different types of quasi-fiscal activities, to which some examples are added to clarify how they might work.

Operations related to the financial system

  • Subsidised lending; where State-owned banks provide subsidised loans to State enterprises or the private sector.
  • Under-remunerated reserve requirements; where banks are required to hold reserves on which they gain a reduced profit from that which they could earn by investing the funds.
  • Credit ceilings; where banks are subject to a limit on the amount of credit which they are allowed to issue

Operations related to the exchange and trade systems

  • Multiple currency exchange rates; where the central bank may use a series of different exchange rates for different transactions, for example, by giving a State-owned enterprise a better rate.
  • Import deposits; where companies may be required to pay a deposit to the central bank to cover the costs they will eventually pay on imports
  • Exchange rate guarantees; where the central bank may provide government contractors with guarantees on the exchange rate they will be required to pay on imports
  • Non-tariff barriers; where imports of certain goods that compete with products produced in the country may be banned or restricted

Operations related to the commercial enterprise sector

  • Charging less than commercial prices; where State-owned enterprises may provide, for example, electricity at a subsidised price to some or all consumers
  • Provision of non-commercial services (e.g, social services); where State-owned companies may provide some services at less than full cost; for example, universities may not charge the full cost of tuition
  • Pricing for budget revenue purposes; where State-owned enterprises may be in a monopoly position and so may be able to charge prices above what a competitive market might establish to raise revenue for the government.

Paying above commercial prices to suppliers; where local suppliers may be paid above the market rate as a form of protection for their industries
What constitutes a quasi-fiscal activity, and what does not, are complicated issues. This is the sure reason why there was a heated debate on the definition.

The identification of quasi-fiscal activities assumes that a clear distinction can be made between the transactions of State-owned enterprises, including banks that are undertaken on a commercial basis and those whose goal is to provide a public service rather than to earn a profit. Determining whether something is a quasi-fiscal activity also assumes that there is a general commercial rate of profit and so transactions that do not achieve this rate may be identified.

The IBP gave the following examples of real quasi-fiscal activities and how they are treated in budgets. The first one is Azerbaijan, where fuel subsidies provided by the national oil company, State Oil Company of Azerbaijan Republic (Socar), were eventually put on budget by recognising the amount of the subsidy in the budget and granting Socar tax credits for the same amount.

The second one is Ghana, where indirect expenditures made to independent power producers that provide power to the Electricity Corporation of Ghana, a public corporation. The Electricity Corporation pays the power producers a higher rate for the electricity they provide than is charged for the users of this electricity. The costs of providing such energy subsidies to ratepayers are not reported in the government’s budget. The question remains: Is the RBZ involved in quasi-fiscal activities?

  • David Mhlanga is a PhD candidate at North West University in South Africa and writes in his own capacity.


  1. Well explained .The RBZ governor seems to understand far much better than the MPs who were quizzing him. The fuel price review was one good example where the government was doing away with quasi-fiscal activities . The same MPs were demonizing the government for the fuel price rise but are telling the RBZ governor not to be involved in quasi-fiscal activities . We need to take our MPs through some orientation so that we do not waste time with MPs asking silly , stupid and ignorant questions.

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