Chinamasa faces tough juggling act

HARARE - Finance minister Patrick Chinamasa is caught between a rock and a hard place as he prepares a national spending plan that must rein in government’s profligate consumption without derailing economic growth.

With his 2017 National Budget coming up on December 8, economic analysts and business executives said the minister needs to present a stimulus plan to turn around the deteriorating economic environment after growth projections were slashed downwards twice this year.

He also has to deal with a plethora of challenges that are plaguing the country, including an economy in recession, pleasing an agitated public service, persuading sceptical international lenders to provide a desperately needed financial bailout, narrowing the budget deficit, stabilising public debt and rebuilding fiscal space.

It’s an uphill battle against practicality, populism and trying to keep his job.

Zimbabwe National Chamber of Commerce (ZNCC) chief executive, Christopher Mugaga, told the Daily News that this year’s budget was going to be Chinamasa’s most daunting task, adding the Treasury chief had to steer clear of “unrealistic” economic growth projections.

“Growth prospects of above 1,2 percent would be nothing short of optimistic. So in his upcoming budget, the minister needs to focus on correcting the economic environment. Simply put, he should examine all the measures that have been put and their expected results,” Mugaga said.

Initially pegged at 2,7 percent then slashed to 1,4 percent, Zimbabwe’s economic growth is anticipated to close the year negative after an International Monetary Fund (IMF) prediction that the economy is now in recession.

Despite these pointers, the 2017 National Budget Strategy Paper has already outlined “positive prospects” for 2017, anchoring next year’s growth on a normal rainfall season, successful developments on the re-engagement front, as well as moderate improvement in international commodity prices.

Mugaga pointed out that Chinamasa, who was set to meet with President Robert Mugabe and Labour minister, Prisca Mupfumira last week, was “probably facing his toughest budget yet”.

He must prepare a budget that should rein in government spending while giving direction to the country’s long rudderless economy. He must also coax reluctant officials at home to push through unpopular reforms.

“It is a tightrope that he will be walking given they were summoned to brief the president about the issue of civil servants’ bonuses. He does not know where he will get the money to fund incidental expenses such as the bonuses.

“In my view, we really should not expect much from the budget because this will be the toughest budget he has done to date, since he became Finance minister,” Mugaga said, adding Chinamasa was also going to slash his revenue projections for the upcoming year.

Ratings agencies will be watching Chinamasa like hawks and even a whiff of fiscal slippage may cause a sovereign rating downgrade, which will increase borrowing costs.

In light of a contracting fiscal space given that revenue collections are shrinking as companies retrench, Chinamasa will also be expected to address government’s expenditure; a topic that almost cost him his job following his attempt to forgo civil servants’ bonuses in his mid-term fiscal review statement.

With the budget strategy paper targeting to increase 2017 budget revenues to $4 billion from the current $3,7 billion on the back of anticipated growth in taxes and new investments, the minister already has his job cut out for him.

Any rollback of tax rates is unlikely as industrial recovery is still not broad.

Zimbabwe has been struggling to meet its $3,7 billion revenue targets for the past three years due to massive company closures and a high unemployment rate worsened by deteriorating economic conditions and lack of key reforms.

In its submissions on the upcoming budget, the Confederation of Zimbabwe Industries (CZI) highlighted that he needed to examine the pervasive lack of confidence in the economy that is hurting new investment.

“There are several issues that need to be addressed on a macro level including fiscal imbalances evolving around the fact that government is spending money it does not have, an uncompetitive and depressed private sector, monetary imbalance between money in the Real Time Gross Settlement (RTGS) account and underlying nostro as well as the significant informal economy,” CZI said.

Both the CZI and ZNCC agree that the treasury chief’s main headache will come from maintaining fiscal balance with little room to manoeuvre, given Mugabe recently shot down Chinamasa’s civil service reforms.

“We believe that government should move back to a strict cash budgeting framework… The fact is that the underlying fiscal imbalances that lead to hyperinflation remain and there is a real risk of a recurrence.

“We applaud the minister for his mid-term budget even though some recommendations were thrown out of the window. We share his disappointment. His bold move to temporarily suspend bonuses and his recommendation to cut down on certain jobs are necessary,” the CZI said.

“Right now, the key to progress lies in growing the national economy so as to be able to achieve national objectives. Last year, Chinamasa announced he intended to cut the civil service employment cost from about 80 percent to 40 percent of total expenditure without even stating how this was to be achieved.

“So this year, we expect the minister to highlight how this is to be achieved because it is yet to be achieved. After all, his Lima strategy document also promises an expenditure cut which he has failed to achieve,” analyst Vince Musewe said, adding Chinamasa still needed to cut salaries in the civil service.

According to Chinamasa, about 83 percent of government revenue is being channelled towards salaries; a situation which he said is “increasingly unsustainable”.

Musewe noted that about 60 percent of government’s wage bill was gobbled by top management in salaries, benefits and allowances.

“It does not make sense for him to cut salaries of employees who make $300 per month. Besides, we all know government does not retrench towards elections. So what he needs to do is to shave top wigs’ benefits and salaries,” he said.

While the IMF last week has started remedial measures after economically-stricken Zimbabwe paid its overdue $107,9 million obligations to the Bretton Woods institution, arrears due to the African Development Bank (AfDB) and World Bank (WB) are still outstanding.

“The thing is, he also needs to state what government is doing about the arrears repayment. He owes it to the public... he must also address state enterprise expenditure and corruption,” veteran economist John Robertson said.

Chinamasa last year proposed an arrears repayment plan at the IMF/WB at annual meetings in Lima, Peru where consensus was reached with creditors on a repayment strategy which entailed the clearance of the country’s $1,8 billion arrears by May 30, 2016.

The date was later on pushed to June 30, but the treasury chief failed to meet the deadline.

Presently, multilateral financial institutions are barred by law from extending loans to Zimbabwe because of its outstanding debts. Clearance of the arrears is expected to pave way for lines of credit.

Zimbabwe owes $600 000 to the AfDB and an additional $1 billion to the WB.

To honour these arrears, Zimbabwe is borrowing from the Afrexim Bank in Egypt. It has settled the over $100 million IMF arrears through drawing rights of about $130 million.

Government plans to amortise the WB debt through a loan capital facility.

“I definitely do not want to be in the man’s shoes right now and I can predict that he is going to try and paint a false rosy picture as the economy goes to the dogs,” Musewe said.

For the past few years, Zimbabwe has been struggling to recover from a catastrophic recession that was marked by hyperinflation and widespread food shortages. Some analysts predict the country could tip back into a downturn this year.

Economic experts said the downward reviews put a dent on the ruling Zanu PF’s five-year economic blueprint, ZimAsset, which was supposed to steer the country forward at an average growth of 7,2 percent per annum.

The 129-page document, which details a five-year plan stretching to 2018 for the economy, details plans including the sale of bonds, securitisation of remittances, re-engagement with international finance institutions and the creation of special economic zones. Financing options were supposed to focus on Brazil, Russia, India, China and South Africa, a group of large emerging market nations collectively known as BRICS, but the plans have all fell through.

The prevailing cash shortages have not helped matters, with banks now giving out bond coins to depositors withdrawing cash, while withdrawing limits have been slashed to $50 or $100 per day, with the business community pointing out that Chinamasa also needs to bring calm to jittery Zimbabweans.

As Zimbabwe waits with bated breath the upcoming budget, most economists sympathise with Chinamasa.

“It is a thankless job, and I really do not wish I was him right now. When all has been said and done, he also needs to curb government’s appetite for Treasury Bills because they are going to cost even future governments,” Robertson warned.

Comments (4)

The ball juggling is not gonna be easy, because the ball is made of steel !

Jambanja paSalisbury - 21 November 2016

The ball juggling is not gonna be easy, because the damn ball is made of steel !

Jambanja paSalisbury - 21 November 2016

Budget presentation is a ceremonial act in many governments and in Zimbabwe it has become a circus. There has never been any year in my memory where expenditure is critical services delivered the required out put except one, thus the trips and protection of Robert Gabriel Mugabe. There has never been a short coming in that but of course over expenditure. Chinamasa, will take the previous figures and adjust them. It has been cried and spoken loudly that focus should be on capital expenditure and and infrastructural development, agriculture and mining, health and educaction. But since 1980, largest budget always goes to defense..

amina - 21 November 2016

Well with bond notes, the money will certainly be available unfortunately the shelves will soon be empty. The wise ones are already buying wheel burrows

Usiku Zvahwo - 21 November 2016

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