By Brett Chulu
It is official: our government spent beyond its 2017 revenues by a whopping US$2,52 billion. This is unprecedented.
This figure is neatly ensconced in a presentation Finance minister Patrick Chinamasa made on April 19 in Washington, curiously titled Towards an Upper-Middle Income Economy by 2030: New Dispensation Core Values. Chinamasa, during his 2018 budget speech, projected a budget deficit for 2017 of US$1,5 billion.
US$2,52 billion crater
It turned out that forecast was US$1 billion off the mark. The US$2,52 billion budget deficit for 2017 represents an unbelievable equivalent of 16,6% of real gross domestic product (GDP). The graph shows how the culture of fiscal indiscipline has evolved from 2009, the year the Government of National Unity (GNU) was formed.
During the course of the GNU, budget surpluses were generated for three consecutive years: 0,4% of GDP in 2009, 2% of GDP in 2010 and 0,2% of GDP in 2011. It is only in the last year of the GNU that a budget deficit of 0,1% of GDP was recorded, understandably so, due to the 2013 election-related expenses. The post-GNU era is one of fiscal deficits through and through. For the first three years of the post-GNU epoch, the ruling party-led government contained the budget deficit below the 3% GDP level.
In the last two years, the current regime graduated from making fiscal potholes to fiscal craters. In 2016, the government unashamedly overran its revenues by a staggering 10% of GDP, US$1,421 billion in absolute terms. Clearly, this is the real reason the government came up with hare-brained schemes like the bond notes.
When a government, with no power to print its own currency, creates a fiscal crater that is 10% of GDP deep, immediately made from a fiscal pothole 2,7%-of-GDP deep, proceeding to fill that crater with funny money spinning off electronic vaults (electronic balances quasi-currency), you expect cash shortages of Armageddon proportions. Last year marked a new level of fiscal profligacy, with the government posting a 16,6%-of-GDP budget deficit. Chinamasa puts it at 14% of GDP; he is using nominal GDP, based on the current prices method of GDP calculation to make the problem more palatable. The 16,6% of GDP fiscal deficit is based on constant prices method of GDP calculation; it eliminates inflation effects so that we base the comparisons on real growth. Let us get back to the argument.
At the present, cash, including bond notes, has practically disappeared from the formal system. You would expect no less than what is happening given that 2016 had a relatively smaller budget deficit crater. A budget deficit creates public debt. The larger the size of the fiscal crater, the larger the public debt we should expect to incur. Chinamasa confirmed this in Washington, disclosing that our public debt was at the time sitting at 86% of GDP. Our domestic and public debt are almost equal, a situation that did not exist during the era of the GNU.
One would easily dismiss the fiscal indiscipline as the foibles of a regime interred in November last year, which cannot be associated with the so-called new dispensation.
Leopard spots unchanged
Fiscal performance data released by the Zimbabwe Treasury shows that the so-called new dispensation has not dispensed with fiscal indiscipline, a badge worn by the old regime.
The budget deficit incurred in the first three months of the year is US$225 million. That is not small. It represents 1,5% of real GDP in just three months. Put into perspective, it is more that the entire budget deficit the Robert Mugabe regime incurred in 2014.
As Chinamasa was busy charming the international community in Washington, a day after the 2018 Independence celebrations, government had already created a huge fiscal pothole.
With a US$225 million fiscal pothole, 1,5% of GDP deep, Chinamasa was selling the international community a rosy picture: “In view of the above deficiencies, and as highlighted under the Strategy Thrust, the new government is seized with implementing a number of reforms, prioritising fiscal consolidation, investment promotion and eliminating inefficiencies in order to attain the required macro-economic stability and growth.”
Sweet words indeed. One can read the sub-text of the message without much decoding to do. By disclosing the fiscal sins of the old regime which he was part of, he was sending the message that we are out with the old.
He was ruthless in his confession in the presence of his Washington audience: “The misdemeanours of past fiscal indiscipline were reflected in failure to adhere to approved budgets, with significant expenditures being incurred arbitrarily outside Budgeted Votes, and failure to follow laid down systems, at times involving quasi-fiscal expenditures.”
Tellingly, Chinamasa threw the erstwhile regime under the bus: “Under the new Dispensation, these weaknesses are being brought to an end.”
Many thought so too, only to be woken up from cuckoo land, with hard evidence that the culture of fiscal profligacy is alive and kicking. Chinamasa did not tell his Washington audience that no sooner had he boldly declared in the 2018 National Budget that chiefs would not be favoured with cars than cars were bought with much ballyhoo. He did not tell them how the so-called new dispensation was arm-twisted by health workers and educationists to squeeze out increments that were not budgeted for.
How he could allow such flagrant violation of the “new dispensation new core values” to happen under his watch is baffling. During the day the new regime shouts economic first and at night chants politics first. Should we create an oxymoron: new old dispensation? The share of employments cost in the national budget is about 90%.
As a proportion of GDP, our government employment costs are 21,6%. How obscene this level of expenditure is comes alive when put side by side other nations.
In South Africa, the 2018 national budget raised alarm in that employment costs were to claim 14% of GDP which is 35% of the South Africa national budget. If South Africans could get incensed by such levels that appear very modest compared to ours, it shows how as a nation we have resigned to accepting the unacceptable.
A wider comparison sheds further light on our levels of fiscal indiscipline. Here are the public sector employment costs for a sample of six countries: Colombia at 5% of GDP, Chile at 6% of GDP, Thailand at 6% of GDP, Turkey at 9% of GDP, Russia at 10% of GDP and Brazil at 13% of GDP.
Chinamasa, apparently, knows the sustainable levels of employment costs are 30% of the national budget; he told his Washington addressees that the new dispensation wants to whittle down the share of employment costs in the national budget to 30% eventually.
The GNU government ate what it killed. The post-GNU government is borrowing to eat. It is unsustainable.
Chulu is a management consultant and can be contacted at email@example.com