HARARE - The Reserve Bank of Zimbabwe (RBZ) says government must enforce measures to limit its capital expenditures or risk remaining in a negative fiscal deficit.
In its latest quarterly report released yesterday, the central bank said government had an overall budget deficit of over $260 million in the nine months to September 2015 and risked remaining in an adverse fiscal balance position.
“In this regard, government remains critical in the short to medium term — therefore should continue to work on improving fiscal sustainability through the implementation of measures aimed at rationalising expenditure and employment costs as well as enhancing revenue boosting measures,” RBZ said.
According to the report, the budget deficit was partly financed through domestic borrowings, through the issuance of Treasury bills as monthly government expenditures generally outpaced revenue collections for most of 2015, resulting in accumulated adverse fiscal balance.
During the nine months, revenue collections by the Zimbabwe Revenue Authority (Zimra) were four percent below the comparable period in 2014, and nine percent below the target, largely on account of subdued economic activity leading to low corporate tax inflows.
“Furthermore, retrenchments, which escalated following the Supreme Court ruling of mid-July 2015, also negatively affected Pay As You Earn (PAYE) collections during the period under analysis,” the central bank said.
Zimra data also shows that revenues from income and profit taxes declined by 12,8 percent for the period January to September 2015, compared to 2014, as both the corporate taxes and PAYE underperformed. These declines were partially offset by the increased performance of the Value Added Tax (Vat), excise and custom duties.
Despite this, the central bank report highlights that cumulative government expenditure amounted to $2,9 billion.
“Recurrent expenditures, dominated by employment costs and pensions and transfers accounted for 94 percent of government expenditures.
“Capital expenditure stood at six percent of government expenditure. Government spending remains largely skewed towards employment costs and this undermines social and capital spending,” the apex bank said.
This comes as Finance minister Patrick Chinamasa and central bank governor John Mangudya recently told International Monetary Fund chief Christine Lagarde in a Letter of Intent that revenue shortfalls in the country made it difficult to achieve a balanced fiscal position.
Zimbabwe has run successive budget deficits averaging 2,59 percent of GDP between 1990 and 2014, reaching a record low of 7,51 percent of Gross Domestic Product (GDP) in 1992.
The fiscal deficit was expected to narrow to below 0,5 percent of the country’s GDP in 2015 from 2,4 percent recorded in 2014 on improved revenue collections and rationalised government expenditure.
According to Chinamasa and Mangudya, government is rationalising the country’s public service establishment in order to generate savings on employment costs and seeking cuts in lower priority current and capital spending while safeguarding priority social spending.