Kingdom Market Report with
Witness Chinyama
Figures released by the Minister of Finance, Mr. Tendai Biti, when he presented the Mid-Term Fiscal Policy Review to Parliament on 14 July 2010 show that Government will incur a budget deficit of US$500 million up from only US$93 million recorded last year.
The deficit represents 9,1 percent of GDP which is significantly higher than 1,8 percent achieved last year. This performance brings us back to the average deficit levels during the ESAP and ZIMPREST periods of around 10 percent.
The issue of government expenditure overruns is a serious issue because it is against its current policy of Cash-Budgeting. The Minister expressed the idea vividly when he coined the phrase “What we gather is what we eat”, or “We eat what we kill”.
This policy has been flouted because the Government is going to incur a huge and unsustainable deficit.
It is unsustainable because it arose due to high recurrent expenditures, which are 86 percent of total expenditures.
The answer from the Minister is that the deficit is due to the non-performance of the vote of credit.
Only US$207 million was received during the first half of the year against a budget figure of US$810 million.
The million dollar question is why should a household plan its expenses on the basis of the benevolence of neighbours especially given that those neighbours are hostile to you.
The writing was on the wall well before the 2010 National Budget was presented on 2 December 2009 that external funding would not be forthcoming to kick-start the economy for two reasons, namely (a) outstanding debts and (b) political factors.
The International Monetary Fund (IMF), for instance, wants Zimbabwe to fully settle arrears to the Poverty Reduction and Growth Trust (PRGT) amounting to SDR 89,4 million or about US$140 million before it can access fresh financial resources. Moreover, access to IMF lending resources is also subject to its policies on the use of such resources, including a track record of sound policies and the resolution of arrears to official creditors, which would require donor support.
On the political front, the major borne of contention relate to the outstanding issues to the Global Political Agreement (GPA).
These issues were known before the writing of the current national budget last year.
Thank heavens that we have found an alternative source of funding the deficit diamonds.
One shudders to think what was going to become of the economy if this resource was non-existence or if the Kimberly Process Certification Scheme (KPCS) had continued adamant that we should not sell the gemstones.
Now that we have been allowed to sell the diamonds and that unlike other countries like Botswana where diamond money enters the fiscus through royalties and taxes, our able Minister has hatched a plan that allows all the proceeds from the sell of the diamonds go straight to the Treasury.
In this regard the Minister intends to amend the Zimbabwe Mining Development Corporation (ZMDC) Act and the Diamond Act so that all net income is transferred immediately to Treasury and that all alluvial diamond mining be conducted by and through the State.
The learning point is that in future we should not draw our budgets based on other countries’ resources.
Those should only come as unexpected gifts or bonuses otherwise we will soon fall into perpetual deficits with negative economic consequences.
This issue should be taken seriously especially this time around when our Central Bank is unable to perform any gymnastics by way of money printing or monetisation of the deficit.
In the case of the gemstones given that the country is estimated to possess 25 percent of the world’s alluvial diamonds, there is a possibility that the gemstones may be sold hungrily to quench our funding requirements with a negative impact on international diamond prices.
There is therefore need for Government to always consider the international supply and demand situation when selling these gemstones like what the Organisation of Producing and Exporting Countries (OPEC) does with its oil.
Secondly, there is a limit to which the economy can absorb these diamond dollars given its weak state something that can result in inflation if the diamond dollars continued to be pumped into the economy.
You remember the temporary US dollar inflation that occurred during the period of the free-for-all diamond panning at Chiadzwa between 2006 and 2008.
