Govt austerity measures target State enterprises

05 Oct, 2018 - 00:10 0 Views
Govt austerity measures target State enterprises Prof Mthuli Ncube

eBusiness Weekly

Golden Sibanda
State enterprises and parastatals that had become dependent on perennial handouts from Treasury, will be the first to feel the heat of Government’s acute austerity measures amid indications Treasury will cut further financial support as part of bold measures to rein in fiscal disequilibrium.

Parastatals or state entities have for a long time been regarded a drag on the economy over their insignificant contribution, poor performance, weak capacity to collect revenue, chronic losses and dependence on financial support from central Government.

To keep them on their feet, Government continued to bail out the State entities, which saw its expenditure rising by 5,9 percent annually between 2011 and 2014 while the public entities yearly revenue grew by just 2,9 percent.

The value of aggregate annual expenditure by Treasury towards bailing out the state entities averaged $3,5 billion over the 2011 – 2015 period, while personnel costs, which account for about a fifth of parastatals annual expenditure, increased by an average of 5,5 percent.

Parastatals GDP contribution
State enterprises, which once made up 40 percent of the economy, have been struggling operationally mainly due to mismanagement and corruption, recording perennial losses and relying on Treasury for survival. The sector’s contribution to gross domestic product (GDP) has since slumped to 2 percent.

As weak structures and viability challenges weighed on the companies, it emerged last year that 38 out of 93 State-owned enterprises audited in 2016 incurred a combined loss of $270 million as weak corporate governance practices and ineffective control mechanisms took their toll.

Yet even as Government sauntered under heavy debts and was being haunted by inadequate revenue inflows to meet its extensive obligations, which saw it presenting a mere $4,1 billion budget for 2018, it continued to bail out the troubled SOEs.

Finance Minister to cut Govt support
Finance and Economic Development Minister Professor Mthuli Ncube, said in an interview with Business Weekly this week that he had already identified key areas to tighten the belt on public expenditure in a bid to contain unsustainable National Budget deficits, which saw Government borrowing about $7,6 billion since 2009 through Treasury Bills (TBs) just to bridge “inescapable” expenditures.

This was over and above overdrafts and cash advances from the central bank amounting to $2,1 billion.

Minister Ncube also said this week that Treasury will put a stop on unrestrained issuance of TBs to avoid further fuelling fiscal imbalances, believed to be the source of the carnage on the parallel market for foreign currency due to the excess liquidity they have injected.

“Certainly, I have identified the areas of Budget (national) overruns and we will be curtailing those and some of them include (cutting) support to parastatals and other expenditures that are ad hoc; so all those will be curtailed; we have a list,” he said.

Minister Ncube said he would not be precise about where else the austerity measures axe will fall, which he will reveal in the 2018 National Budget statement review, which he will announce this afternoon.

“I will not pre-empt the (national) Budget review by giving the details (of what areas of Budget overruns the Budget will target), but the message is that we are going to curtail expenditure and make sure that we begin to live within our means,” he said.

Govt used TBs to fund deficits
To finance unsustainable National Budget deficits, the Government had to mainly resort to domestic borrowing predominantly through the use of instruments such as TBs, overdrafts with the central bank as well as loans from the private sector.

In light of this, the TBs to gross domestic product (GDP) ratio therefore has shot to 35,6 percent as at end of August from about 4,4 percent in 2014.

Harare-based economist Andy Hodges, this week commended the Government on its pledge to whittle unsustainable public expenditure, which over the years have spawned fiscal imbalances.

“The minister and the Reserve Bank at least acknowledge that Government expenditure was too high.

“When you are talking about $2,1 billion overdrafts at the Reserve Bank instead of $764 million, it is clear that Government has to tighten their belt. This is why the President was talking about austerity measures,” Hodges said on Tuesday.

Asked if, other than cutting support to parastatals and State entities, the areas targeted under the austerity measures will not compromise service delivery, a reason the previous administration gave choosing to incur perennial deficits citing “inescapable” expenditures, but often with disastrous consequences Minister Ncube said he was aware what the critical areas were.

“We understand where the critical services are, we understand how to improve the quality of service delivery. As I said, we have identified these areas and whatever we do and cut (expenditure) will not jeopardise the efficiency of service delivery from Government,” the new Treasury chief explained.

Minister Ncube said the Government intended to invest on enhancing the quality of service delivery, a subject he said he was passionate about.

Minister Ncube said on Monday the ballooning TBs balance was a cost to Government, which necessitated measures to contain the situation.

In future, the minister said, any issuance of TBs would be through the public auction system, a more market oriented system, which is meant to improve the process of price discovery, better pricing, transparency and market confidence building.

“To date, Treasury Bill issuances have increased from $2,1 billion in 2016 to a cumulative $7,6 billion, by end of August 2018.  In 2014, TBs to GDP ratio was at 4,4 percent and has increased sharply to 36,5 percent by end of August 2018.

“This is a cost to Government. Excessive issuance of short-term debt instruments at high interest rates also crowds out the private sector and compounds the increase in Government recurrent expenditure,” the minister said.

Ncube said under a devolved central governance system, it meant the country’s public finance management system would have to cater for that type of decentralisation to ensure efficiency in the delivery of public service.

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