ZIMBABWE’S high spending government went beyond its central bank overdraft limit, spending $400 million more that the stipulated $800 million in 2017, Reserve Bank governor John Mangudya revealed yesterday.
In any given year, government borrowing from the central bank is capped at 20 percent of its revenue the previous year.
Government revenues fell short of $4 billion in 2016, meaning its recourse to the RBZ overdraft should not have exceeded $800 million in 2017.
Zimbabwe has run ever widening budget deficits, funded mainly through the issuance of treasury bills and borrowings from the central bank, fuelling resurgent inflation.
Mangudya called for belt tightening by President Emmerson Mnangagwa’s new administration, promising to uphold lending limits this year.
“This measure is necessary in order to comply with good corporate governance and to mitigate the unintended consequences of excess government overdraft on the economy,” Mangudya said during his monetary policy presentation yesterday.
“In terms of the overdraft, we are at $1,2 billion. We were supposed to borrow $800 million, but we are $400 million above the limit. We want to stick to this. We are putting measures to ensure that we stick to this,” he said.
The monetary policy statement was the first under the Mnangagwa administration, which faces elections in a few months.
The effects of government resorting to the overdraft facility beyond prescribed limits have been clearly reflected by an escalation of money supply, which has resulted in increased inflationary pressure in the economy.
Analysts have slammed government for lack of fiscal rectitude, as well as misplaced priorities, which have been highlighted by a consumptive fiscal policy, including spending on luxury cars and expensive foreign trips.
There has been little commitment to deal with massive de-industrialisation, which resulted in the closure of at least 4 500 firms between 2011 and 2013 alone and the loss of 55 000 jobs during that period.
More companies have closed since then.
Deindustrialisation has resulted in a huge import bill, which has seen the country raking up a huge cumulative current account deficit, estimated at $18 billion between 2009 and 2015.
The trade deficit remained unsustainable, Mangudya said, but he noted that it had retreated in the past year.
The improvement was on account of increases in merchandise exports, which saw the deficit narrowing to $1,457 billion in 2017, from $2,182 billion the previous year.
Government spending has spiralled out of control and economists project it to exceed $2 billion, about 12 percent of gross domestic product, registered last year, in the 2018 fiscal year.
Mangudya said ongoing re-engagement with global lenders was key in improving Zimbabwe’s finances as the country would access fresh external capital and not overburden internal sources.
“Why is Zimbabwe’s overdraft unique?” Mangudya asked.
“We are closed to foreign finance. We have been by ourselves for 17 years. If we were in good books with them, the World Bank would give us budgetary support. But we owe them. We are not getting loans from the IMF (International Monetary Fund), that is why we have the overdraft. But in SADC most countries are in deficit. But we now have hope,” Mangudya said, referring to policy reforms being undertaken in Zimbabwe. firstname.lastname@example.org