Finance Minister Mthuli Ncube on Wednesday faced MPs’ questions on the economy, in a session marked by a new round of heated policy debate with Tendai Biti, a former Finance Minister.
Highlights: Tendai Biti suggests that the solution to ending the currency crisis in Zimbabwe is to ditch the RTGS and return to dollarisation, a proposal that Ncube rejected.
Ncube shoots back at Biti, saying monetary policy was curtailed under Biti, to which Biti says a country can in fact do without a central bank or monetary policy. Biti also demands answers on why Afreximbank continues to lend money to Zimbabwe, and why such loans are not brought to Parliament for approval.
Excerpts below, courtesy of Parliament’s Hansard:
HON. BITI: Hon. Speaker Sir, my question is to the esteemed Minister of Finance and Economic Development. On the 1st October 2018, the Minister of Finance and Economic Development assumed office. He assured the country that within six months, he would have mitigated the economic challenges but ten months later, the economy is on a tailspin and there are many shortages. Given the runaway inflation which is now around 300%, given the serious implosion of the black market rate which I am told that today is trading at 1.1 to 8.2 – why as a matter of policy is the Minister simply not a) demonitising the RTGS dollar and the bond note; b) not reverting to dollarisation and the regime of multiple currencies. Thank you Sir.
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): Let me begin by thanking the Hon. Member for the question. There are three things in that question. First of all, it is about when I assumed office and secondly, what I promised within six months; 3) demonetising the RTGS dollar and US dollarising by default.
First of all, I did not assume office on the 1st of October. I assumed office on the 7th of September. On the reference to turning things around in six months, the fiscal position of the country has been turned around in six months in the sense that we have eliminated the deficits on a month by month basis. We have surpluses and now we will start focusing on how to deal with social protection issues so as to protect vulnerable members of our society from the vagaries of inflation including the drought and the cyclone – we are beginning to do that.
“(Biti) destroyed this country’s ability to conduct its own monetary policy completely…”Mthuli Ncube, Finance Minister
On the third part of the question pertaining to demonitisation of the RTGS dollar and adopting the US dollar; what happened when the US dollar was adopted, basically as a de facto currency during the time that the Hon. Member was a Minister, what he did is – he destroyed this country’s ability to conduct its own monetary policy completely. So, the Central Bank was taken out of all monetary policy ability and what was left was fiscal policy only. Those are the facts and I have said that from the beginning that we need both legs for macro-economic management, the fiscal and monetary policy legs.
So what we did on the first of October last year was to begin the process of restoring monetary policy as an additional tool in our tool box to deal with macro-economic issues. That is what has gone on. Now, let me explain the issue of the use of the US$ further. Basically, on the US$ we do meet, Mr. Speaker Sir, challenges with transactions in US$ abroad and so forth, and perhaps members are not aware but I should make them aware that, we have had situations where we have been refused supply of US$ into the economy by certain banks who are complying with the US sanctions.
So, it is quite clear that we need to move towards having our own domestic unit account and the RTGS$ is the beginning of that. What is left now is for us to continue to fine tune the interbank market making it more efficient and also putting in place the micro institutions for making sure that monetary policy begins to work. One of the things that we have done Mr. Speaker in order to booster our balance of payment position, is to put in place a US$500 million facility which we have sourced from outside in order to deal with demands for meeting external payments from importers and others. I thank you Mr. Speaker Sir and the Hon. Member for the question.
“You cannot say I have $5 in the bank. Yes, I have got surplus, but you have not paid school fees”Tendai Biti, MDC, Harare East
HON. BITI: Mr. Speaker, there are countries that operate without a Central Bank and without monetary policy, but my real question is – I hear the Minister talk about a surplus each time he opens his mouth. Mr. Speaker, two things to the Hon. Minister. Firstly, you cannot celebrate a cash surplus (cash-at-hand) when international accounting standards are accrual. You cannot say I have $5 in the bank. Yes, I have got surplus but you have not paid school fees. …
THE HON. SPEAKER: What is the question?
HON. BITI: The question is – you cannot celebrate a surplus on a cash basis when debts are accruing every day. So, Hon. Minister, your contention of a surplus is fictitious because you are not using international standards of accrual accounting. Secondly, to the question of the surplus Hon. Speaker, the budget of 2019 was expressed in US$. The accounting of Government from January has been based on the RTGS$ from 20 February, 2019. Are you recording a surplus in US$ terms Hon. Minister?
HON. PROF. M. NCUBE: Again, I thank the Hon. Member for those two, actually its three questions. One; are we using international standards in our accounting procedure; accrual versus accounting standards. Then the surplus, is it fictitious or not? Thirdly, is the surplus; is it in RTGS or US$? Let me go back to the first question. The cash accounting in terms of the budget report is in line with international standards. Those are the facts. What is happening is that there are countries that are beginning to use accrual accounting and what we have started working on is that by 2022, we will move to accrual accounting.
Now, the steps required are as follows; what is required is for us to move towards a four balance sheet accounting, which means we have to value all Government assets and we have started doing that….
THE HON. SPEAKER: Hon. Minister, perhaps in your explanation, if you can simplify the issues so that people can understand what you mean by accrual, otherwise you will be asked the same questions again.
HON. PROF. M. NCUBE: Mr. Speaker, the question as I understood it was not to explain the difference between accrual and cash. The question is on what we are using. At the moment, we are using cash accounting and I can confirm that. Now, as to whether we have got a surplus or not, the answer is yes, we have a surplus in both RTGS and US$. In RTGS currently and cumulatively, it is about RTGS$600 million. If you divide that with the current exchange rate you get about US$$100 million.
“Can (Mthuli) clarify how the people of Zimbabwe are benefiting from this surplus which he is always harping about?”Innocent Gonese, MDC, Mutare Central
HON. GONESE: The Hon. Minister is always harping about this surplus. My question to the Hon. Minister is that of any real benefit to us as Zimbabweans. We look at the standard or cost of living for everyone which is deteriorating on a daily basis and we look at the spending capacity of all the Zimbabweans; it has been adversely affected. We look at the real wages in real terms, they have actually declined and my question to the Hon. Minister is – is that of any real benefit to us or is it something which is just meaningless and not of any meaning to us? Can he clarify how the people of Zimbabwe are benefiting from this surplus which he is always harping about?
HON. PROF. M. NCUBE: The benefits for the surplus are as follows; having a surplus stops growth in money supply which in the long run will contribute towards a stabilisation of inflation. Secondly, the surplus is being used to cushion civil servants in terms of higher wages. In January, we gave them a cushioning of $63 million from 1st April to December $400 million. Thirdly, we are using the surplus for social protection programmes starting with Cyclone Idai. We have allocated $100 million towards that process but also, we are using the surplus for the usual social protection programmes such as the food programmes in both rural and urban areas. We are also supporting other social services such as BEAM in the education and also, the health sector. In addition to that, we are going to use the surplus for importing food. We have already issued out a tender through GMB to import additional food to deal with the impact of the drought. So it is being used in these areas Mr. Speaker. I thank you.
“What I asked is very simple and I would like the Minister to answer in a simple way”Rusty Markham, MDC, Harare North
HON. MARKHAM: Mr. Speaker, my question to the Minister on the economy is – in his quarterly address to us, he mentioned that he had received income of 8.2%. In the very next breath, he mentioned that there was 66% inflation. How can he claim to have a surplus when all those were figures of collection, 8% versus 66%? What I asked is very simple and I would like the Minister to answer in a simple way like I asked. If you are receiving a salary of $2 000 and you have got the exchange rate moving by 8, that means your salary is now $250.
Secondly, if you are on the lowest scale and you are getting $300 and you divide by 8, it is less than $40. Now, if you have got a surplus, why have you not given the civil servants a very meaningful increase, $29 is what the average civil servant got not the millions he is talking about. It is $29. Can the Minister answer in simple language for us?
HON. PROF. M. NCUBE; First of all, when you think of salary adjustments, we never benchmark to an exchange rate to the USD in which case he has used a parallel market rate of 1:8. We do not do that. We try to bench mark salaries to the inflation level and that is how it is ought to be done.
Secondly, should we give civil servants an increase in line with the exchange rate which the Hon. Member mentioned – the answer is no. We will continue to engage them, it is an increase that begins to ameliorate against the current levels of inflation and we will continue to engage them so that we can adjust their emoluments both in monetary and in non-monetary terms. I thank you.
HON. BITI asked the Minister of Finance and Economic Development to update the House on the following-
(a) the budget deficit between January and August 2018;
(b) the amount of money borrowed and from where during the same period;
(c) the amount of Treasury bills issued and what they were used to finance;
(d) the amount of money spent on wages and pensions during this period;
(e) the percentage of the total expenditure of the wage bill;
(f) the amount of money spent on loan repayment and interest;
(g) the amount of money borrowed from the Central Bank from 2014 to 2018;
(h) the size of the domestic debt and its breakdown; and
(i) the amount spent on and recovered from Command Agriculture from 2016 to 2018.
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): I thank the Hon. Member for the question. First of all on the budget deficit between January and August 2018, in US$ is as follows: January 2018, it is $26 million; February 2018, it is negative $61.5 million; March 2018, it is negative $146 million; April 2018, it is negative $264.6 million; May, 2018, it is negative $361.4 million; June 2018, it is negative $402.1 million; July 2018, it is negative $593.8 million and August 2018, it is negative minus $600 and I have broken it month by month. I am sure someone can add up very quickly using a calculator.
On question (b) regarding the amount of money borrowed and from where during the same period of January and August 2018, the total borrowed during that period in terms of the Reserve Bank overdraft facility is $929.09 million and the amount borrowed by the Central Bank directly is $55.96 million and other loans it is $174.17 million. So that is it.
On (c) the amount of Treasury Bills issues and what they were used to finance. The total Treasury Bills issued for the period under review is $2.5 billion and was issued for budget financing, for capitalisation of Government institutions and for dealing with legacy debts. The holders of these instruments are banks, insurance companies and pension funds. The split of that $2.5 billion in terms of budget financing is $343.39 million was used for budget financing for dealing with legacy debts it is $1.5 billion, capitalisation and recapitalisation of State institutions it is $643.14 million and the total is $2.5 billion.
I now move on to (d). The amount of money spent on wages and pensions during the period January to August 2018. The expenditure outlay on employment costs for the period January to August 2018 stood at $2.48 billion and it is broken down as follows: Civil wages bill $1.6 billion, PSMAS $90.6 million, NSSA $23.2 million, funeral expenses $0.3 million, grant aided institutions $317.3, pensions $369 million and the total is $2.48 billion.
I move on to question (e), the percentage of the total expenditure of the wage bill. Employment cost accounted for about 86% of total expenditure and net lending over the eight months ending August 2018, and I repeat, it is 86%. The amount spent on loan repayment and interest, in January 2018, it was $9.7 million, February $9.6 million, March $27.8 million, April $9.7 million, May $717.9 million, June $29.9 million, July $47.1 million and August $33.4 million.
In terms of loans from the Central Bank, we paid interest in May 2018 of $89.8 million, July it was $3.2 million and in August it was $195.8 million. The Hon. Member also has another sub-question pertaining to the amount borrowed from the Central Bank from 2014 to 2018. I thank him for that question and he refers to the overdraft facility. In 2014, it was $126.4 million, 2015 it was $152.4 million, 2016, $663.1 million, 2017 it was $427.5 million and in 2018 it was $929.1 million and it is up to August 2018 as posed.
Then the total domestic debt at the end of August 2018 is $9.5billion and is broken down as follows: for budget financing – $429 million; legacy debt – about $4 million; RBZ debt – $266 million and for capitalisation – $1.4 billion; RBZ recapitalisation – $110 million. Then there were TBs that were authorised for issuance by the RBZ by those who will not follow through and in the end they were cancelled. It is about $38.3 million. Then the arrears -$116 million; overdraft facility cumulative is $2.3 billion, I am rounding off. So, that is the sum of the figures that I gave earlier.
The Central Bank loans – $623 million; loans from the private sector – $188 million and the total is $9.5 billion.
That is the amount spent and recovered from command agriculture from 2016 to 2018.
Basically, the amount recovered for the season 2016 to 2018 is, out of 44 617 farmers is $50.2 million. For the season 2017 to 2018 for maize again, we had 35 756 farmers and the amount recovered was $19.7 million.
Then for the wheat planting season of 2017, we have 2 270 farmers and what was recovered is US$13.7 million. Then for the wheat planting season for 2018, we have 74 847 farmers. Then for soya beans for the season 2017/2018 from 2 041 farmers, it is US$1.5 million. Thank you Madam Speaker ma’am.
HON. BITI: Hon. Speaker ma’am, I would like to ask the Minister, the esteemed Hon. M. Ncube to assure this august House that he is going to bring Bills of condonation and supplementary estimates to cover the budget deficits from 2014 to 2018 – a period where the Government was overspending outside the budget approved by this august House. If so, when is he going to bring those supplementary statements and the Bills of condonation?
Secondly Hon. Speaker ma’am, in respect of the overdraft maintained by the Government with the Central Bank, the law is very clear in terms of Section 11 of the Reserve Bank Act that overdraft should not exceed 20% of the previous year’s revenue and you can see from his figures that the Government has been over-borrowing beyond the statutory limit provided for in the Reserve Bank Act. Can the Minister also assure this august House that he is going to bring a Bill of condonation in respect of that overdraft from 2014 to the present day? I thank you Hon. Speaker ma’am.
HON. PROF. M. NCUBE: I thank the Hon. Member for those two questions. I confirm that I will bring to this august House, Bills of condonation and supplementary statements to basically condone the overspending that took place between the periods 2014 to 2018. I also confirm that I will bring to this House, again Bills of condonation for the violation of the rule for the overdraft facility of 20% of the previous year’s expenditure to this House for condonation. I thank you.
HON. CHIKWINYA: Thank you Madam Speaker. My supplementary question emanates exactly from the recent answer by the Hon. Minister to the extent that he will bring Bills of condonation and supplementary statements.
My question is – why is Government therefore in a habit of breaking the law? Why is the Minister simply comfortable in breaking the law and not bringing Bills of condonation since 2014? We are almost five or six years down the line with the Minister breaking the law, only to be reminded by Members of Parliament to bring in Bills of condonation. The import of the law Madam Speaker, is not that the Minister must break the law then seek condonation but we must be able to respect our own laws first for us to be able to attract any other FDI if we are going to be serious. Thank you.
HON. NDUNA: On a point of order Madam Speaker. Even though kamba isingavhari nekufa kwe mujoni, the Hon. Member of the National Assembly Hon. Chikwinya, alludes to a period way before the Minister’s appointment. I ask Madam Speaker ma’am that you guide the House accordingly. The man speaks with so much verve and energy and again the Minister has just come into office. I ask that you protect the Hon. Minister from this delinquent behaviour by the Hon. Member who is castigating him with impunity, even aware that the Hon. Minister has just gotten into office. Madam Speaker ma’am, protect the Hon. Minister. I pray that. Thank you.
HON. PROF. M. NCUBE: I certainly have no intention of breaking the law and the Hon. Member is right that we should not break the law. So, I intend to comply with it and bring for condonation before this House a Bill and supplementary statements to deal with the overspending that was incurred between the period 2014 and 2018. Thank you very much.
“It is not immediately obvious to me that when he was Minister of Finance, he brought every loan that he contracted abroad to this Parliament’s approval”Ncube on Biti
HON. BITI: The Minister of Finance has alluded to a loan of US$500 million that they have contracted from the African Export Import Bank (AFREXIM BANK) to ameliorate and mitigate the current economic challenges. We thank him for those efforts, we also thank the RBZ Governor for the efforts too but the law is very clear that you cannot contract a debt with an international organisation which imposes fiscal obligations on Zimbabwe before Parliament has approved. If Parliament has not approved, that debt is invalid. For the avoidance of cdoubt, I will read Section 327 (3) of the Constitution. It says, “an agreement which is not an international Treaty but which (a) has been concluded or executed by the President or under the President’s authority with one or more foreign organisations or entities”, of which Afreximbank is one and “(b) imposes fiscal obligations on Zimbabwe does not bind Zimbabwe until it has been approved by Parliament”. Why does the Government keep on borrowing money from the African Export Import Bank without Parliament approval?
HON. PROF. M. NCUBE: It is not immediately obvious to me that when he was Minister of Finance, he brought every loan that he contracted abroad to this Parliament’s approval, I do not recall that. What I agreed to is that I will bring a report on whatever loans has contracted to Parliament as the law demands.
Let me add a second point to complete the answer that some of these transactions are structured and structured means that certain proceeds of commodities are attached to servicing the loan. So, the risks around the loan are completely ring-fenced and this is a normal loan structure. In fact, it is smart when you do that because you are sure you will be able to pay off the loan. I thank you.
HON. S. BANDA asked the Minister of Finance and Economic Development to state the amount of money owed to the African Import and Export Bank by the Government of Zimbabwe.
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): When the question was posed, the figure was US$753 million and then you add the other US$500 million so that takes us to US$1.25 billion. I thank you.
HON. BITI: Hon. Speaker once again, we ask the Hon. Minister why Section 327 of the Constitution is not being complied with. These African Export and Import Bank loans, the Afrexim loans; why are they not being brought to Parliament for approval? We also ask the wisdom of why a bank with a balance sheet of $2 billion lends to one country $1.2 billion. What is happening? Are there private deals, incest – and what is so special about the African Import Export Bank?
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): I thank the Hon. Member Biti for the question. In terms of this, he has already asked this question before, and so have others and I have agreed that these loans in future will be reported in this House so that we comply with the provisions of the law. In terms of how this bank structures loans to Zimbabwe, frankly, that is their business. We do not go into the issues of their balance sheet. They have a CEO, board, processes and they have credit rating agencies that rate them. So, there is governance structures around them and we are not really party to how they make decisions.
Our job as a borrower is to borrow and we can be turned down or accepted. I am happy to say on this occasion, they have accepted our request to lend us and we are very pleased that they were able to do so. This will go a long way in assisting Zimbabwe. I think the Hon. Member will agree with me that this is a most welcome development, given that it is very tough out there to raise funds globally to support the economy, the recovery story, recovery agenda and we should be very pleased as this bank has come forward to assist us in this manner when many will not. I thank you.