IN his first address as president last November, Emmerson Mnangagwa promised to focus on economic recovery and to “shed misbehaviours and acts of indiscipline which have characterised the past.”
But, faced with a tough battle to secure a fresh mandate after completing ousted President Robert Mugabe’s term, Mnangagwa abandoned his austerity pledge and resorted to his old mentor’s tactics – throwing money about with reckless abandon.
Zimbabweans only got to see the full effects of the Mnangagwa administration’s unrestrained spending this week, when Finance Minister Mthuli Ncube increased the tax for electronic transactions in a desperate effort to raise cash for government.
Ncube changed the terms of the tax from the previous 5 cents per transaction to 2 cents per dollar.
Zimbabwe, which dollarised in 2009 to escape hyperinflation, has experienced a shortage of dollars since late 2015 – thanks in part to a massive trade gap and government profligacy.
As a consequence of the shortage of physical cash, virtually all the country’s payments, which amounted to $65 billion in the first half of 2018, are now executed on electronic platforms.
While Ncube’s transaction tax seeks to expand the tax base by tapping into the informal sector and to target roaring illegal foreign currency trade, its ultimate goal is to dig government out of the hole it dug itself into in a frenetic second quarter in which Mnangagwa scrapped trough to his first full term after a closely fought presidential election.
MIND THE GAP
Treasury data shows government spent $3.86 billion in the first half, $2.5 billion of this between April and June, against a target of $1.26 billion.
Although first half revenues of $2.5 billion exceeded the target by 14%, a staggering budget deficit of $1.35 billion was recorded in the period, 408% above a target of $266 million. Government had initially forecast a budget deficit of $700 million for the full year.
The huge deficit was caused mainly by unbudgeted spending on farm inputs under the command agriculture scheme – $616 million, grain imports – $81 million, road maintenance – $225 million, and dam construction – $87 million, as well as $212 million injected into state enterprises.
All in all, government’s capital expenditure and net lending alone amounted to $1.48 billion in the first half, against a target of $371 million.
Employment costs, at $1.84 billion, were 9% above budget but 74% of revenues following wage increases for civil servants, some of whom went on strike ahead of the July 30 election, adding $52 million to the monthly payroll.
Government also hired an additional 2,282 nurses and reviewed health sector allowances, increasing the monthly bill by $12 million.
The deficit was funded through Treasury Bill issuances amounting to $1.37 billion. Government also borrowed $478 million from the central bank.
On Monday, Ncube said Treasury Bill issuances have risen from $2.1 billion in 2016 to a cumulative $7.6 billion, at the end of August 2018.
At the end of the same period, the government’s overdraft with the central bank stood at $2.3 billion, nearly three times over the statutory limit of $762.8 million. Government borrowing from the central bank is capped at 20% of the previous year’s total revenues, by law.
Due to the spending binge, government’s domestic debt has increased from $275.8 million in 2012 to $9.5 billion currently. The external debt stands at $7.4 billion.
Government’s unrestrained expenditure has stoked inflation, which rose to 4.9% in August. The September rate is expected have reached a post-dollarisation high.
Ncube warned that the resultant macro-economic instability threatened the economy’s growth prospects, although he still forecasts it to expand by as much as 6.3%, more than the 2018 budget’s initial 4.5% projection.
On Tuesday, Cabinet approved Ncube’s transitional economic programme, which is expected to focus on austerity measures as well as civil service job cuts and privatisation.