Africa Moyo Senior Business Reporter
THE cost-cutting measures announced by Finance and Economic Development Minister Professor Mthuli Ncube are expected to restore confidence in the economy while also trimming budget deficit, analysts have said.
Prof Ncube unveiled a raft of cost-containment measures including a 5 percent salary cut for top Government officials including President Mnangagwa. Further, 2 917 youth officers are to be retired by end of next month, while a biometric registration of civil servants would be undertaken to eliminate ghost workers estimated at over 70 000.
Prof Ncube told The Herald Business last week that he was optimistic the measures would bring the much-desired economic turnaround.
“We have cost-cutting measures and the President is leading from the front to say, ‘I am going to cut my salary by 5 percent and all of you follow suit including parastatals’,” said Prof Ncube.
“As we work towards achieving the aspirations of the Transitional Stabilisation Programme (TSP) and ‘Vision 2030’, we have the whole issue around wage bill containment and accompanying that is the whole issue of Treasury Bills issuance, strengthening their maturity to reduce interest, and closing down the RBZ window.
“All of that is part of fiscal consolidation.”
Prof Ncube said the primary objective of the 2019 Budget is to stabilise the economy by targeting the “twin deficits” of fiscal and current account, which have become “major sources of overall economic vulnerabilities, including inflation, sharp rise in indebtedness, accumulation of arrears and foreign currency shortages”.
Once the measures are implemented in full, they are expected to spur attainment of a middle-income economy by 2030 when citizens will have decent jobs and a per capita income of US$3 500.
University of Zimbabwe economics lecturer, Mr Edgar Muhoyi, told The Herald Business that austerity measures unveiled by Prof Ncube would help the country reduce budget deficit and restore confidence in the economy.
“Austerity or contractionary fiscal measures may involve cutting down on public spending (or higher taxes) or both. These measures are mainly implemented to reduce the Government budget deficit especially during a period of weak economic performance,” said Mr Muhoyi.
“Of particular interest to note though, is that delaying infrastructure spending may actually weigh-down on long-term productivity. However, ‘austerians’ strongly believe that budget cuts will result in lower budget deficits and associated reduction in interest payments spending which can be perceived to restore markets’ confidence in the long run.”
Mr Muhoyi said cutting expenditure, particularly through the 5 percent salary cuts, removal of ghost workers and retiring youth officers, was a welcome development.
“. . . I feel it is a good intention that was long overdue. However, I strongly feel a 5 percent salary cut is too light an austerity measure. These can generally be perceived as intentions of marginal reduction in Government spending. It is common knowledge that a Government’s basic salary for higher Government officials targeted by this austerity measure is insignificant as compared to associated fringe benefits.
“A deep austerity measure will cut on major fringe benefits among other expenditures. This will signal a serious Government intention on fiscal discipline.”
However, Mr Muhoyi called on Government to implement austerity measures that have a “human face” by not exposing the vulnerable to further economic harm.
Economist and Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer Mr Takunda Mugaga also said the new thrust on Treasury Bills issuance, where a note was now required from the Accountant General, was welcome.
“It is a good move but there is need to empower the Accountant General. At the moment he reports to the minister (of Finance) which means minister’s wish shall prevail. However, it is commendable that TBs are only issued to finance deficit not to pay debts and Zamco’s non-performing loans,” said Mr Mugaga.
Mr Mugaga also believes the 5 percent cut on top Government officials’ salaries was insignificant.
He suggested that a 50 percent cut on allowances, while leaving salaries intact, was going to have far-reaching implications on Government’s endeavour to reduce spending.
Unbudgeted expenditures choke economy
Government wants to reduce the budget deficit to preserve funds for infrastructure development and also pacing up private sector involvement in economic revival.
Revenue collections to September 2018 hit $3,8 billion, surpassing the $3,4 billion target.
It is now expected that by year-end, revenue collections would hit $5,5 billion. But total expenditures during the period January to September, stood at $6,5 billion against a target of $4,1 billion.
Prof Ncube said this year’s budget deficit is projected at $2,86 billion (which is 11,7 percent of GDP), against a target of $793 million.
Cumulative deficit emanates from unbudgeted expenditures mainly relating to employment costs, support to agriculture and some capital expenditure and net lending items.
The budget deficit level has outstripped market sustainable levels, such that Government has increasingly been relying on the overdraft facility with the Central Bank.
The overdraft window increased by $1,11 billion between January and September and is projected to close the year at $2,5 billion, which is well above the stipulated statutory limit.
Government has been issuing Treasury Bills and bonds for the financing of the budget deficit, capitalisation of public entities, payment for past Government debt and other programmes including Command Agriculture.
Between January to August this year, Government issued Treasury Bills and bonds worth $2,5 billion and as at end of August, Government securities stood at $6,2 billion.
Prof Ncube says reducing budget deficit and limiting borrowing to sustainable levels, will allow channelling of more resources to the private sector, which will support the country’s overall strategy for a private sector led growth.
Spiking domestic debt has also pushed up the public debt and by end of August 2018, the public debt stood at $17,69 billion.
Domestic debt accounted for 54 percent up from 49 percent while external debt moved down from 51 percent to 46 percent.
By the end of year, public debt is projected to surpass the statutory limit of 70 percent, making a strong case for urgent containment of fiscal deficit.
But with month-on-month budget deficit level narrowing in September after posting a $29 million budget deficit, there is scope for achieving a balanced budget position.