eBusiness Weekly
Golden Sibanda
Treasury is targeting to close its over $1 billion overdraft position with the Reserve Bank of Zimbabwe within the next 100 days, as the Ministry of Finance and Economic Development moves to put the brakes on costly extra-budgetary expenditures.
Deputy Minister for Finance Terrence Mukupe said in an interview, Treasury was acutely aware that expenditures beyond national budgets, and funded through relentless issuance of Treasury Bills, had negatively impacted on the domestic economy.
This resonates with Finance Minister Patrick Chinamasa’s remarks in his 2018 National Budget, “that at the heart of the economy’s fundamental economic challenges was an unsustainable budget deficit, who’s financing through issuance of Treasury Bills and recourse to the overdraft with the Reserve Bank is untenable.”
In that regard Deputy Minister Mukupe noted that part of the repercussions of the recent Government’s expenditures beyond budgetary limits included recent inflationary pressures and some of the spate of price increases witnessed lately, stemming from too much money circulating in the economy compared to available goods. Annual inflation surged in November 2017 to 2,7 percent, stoking fears of renewed runaway inflation, which eroded the value of most savings and precipitated an economic meltdown, which decimated half of Zimbabwe’s gross domestic product over nearly a decade, to 2008.
Annual inflation averaged 0,87 percent between 2009 and 2016, underpinned by a strong and stable US dollar, having peaked at 231 million percent at the last official count prior to dollarisation in February 2009. Of the $2,1 billion worth of TBs and bonds issued in 2016, just about $356,3 million was to finance the budget deficit, while $1,7 billion was to honour outstanding legacy debts, Minister Chinamasa told Parliament during a review of the 2016 National Budget in April last year.
To deal with the negative implications of profligacy and unbudgeted expenditures, mostly for key public programmes, but which accrued for Treasury nearly $1 billion budget deficit in 2016, Treasury will stop issuing TBs and roll over those it may not be able to pay off. But Deputy Minister Mukupe said the starting point of the austerity measures would be to close the overdraft position with the Reserve Bank of Zimbabwe within the next 100 days, signalling a commitment to rein in expenditure not provided for in the national budget.
“We have an overdraft position of over $1 billion with the Reserve Bank of Zimbabwe; within the next 100 days we have taken measures to close out the overdraft position. In terms of TBs, we should not issue more. TBs that were issued in the past were meant to finance key programmes such as Command Agriculture and grain payments for GMB.
“We want to do away with issuing TBs. We have to be careful. In fact, we have come up with a three-pronged approach; to stop issuing TBs; if TBs cannot be paid on maturity they will be rolled over and if we are able to pay, we will pay off where resources are available,” he said.
Government resorted to issuing TBs to clear $1,07 billion worth of obligations to suppliers and service providers who delivered goods and provided services to various line ministries and departments. TBs worth $329 million, according to the Finance Minister, were issued towards clearing the Reserve Bank of Zimbabwe’s legacy debts. The Treasury chief also highlighted that added to the assumption of the RBZ debt was $130 million due to external creditors.
Government also issued TBs worth $128 million to support mainly loss-making state-owned enterprises and parastatals. Further, Treasury issued TBs to the tune of $219 million to recapitalise a special vehicle set up by the Reserve Bank of Zimbabwe to absorb non-performing loans. The debt build up was despite the fact that Government already carried an unsustainable sovereign debt of at least $11,3 billion with nearly half of it already in arrears and owed to global lenders, which have since stopped extending concessionary funding to Zimbabwe.
In his 2018 National Budget Statement Minister Chinamasa said the gravity of fiscal indiscipline was reflected in failure to adhere to approved budgets, with significant expenditures being incurred arbitrarily outside budgeted Votes, and failure to follow laid down systems, at times involving quasi-fiscal expenditures. He said that this had resulted in persistent fiscal imbalances and consequently, a breakdown of national budgetary systems, laid out processes, and a major fiscal and monetary policy disconnect.
“More so, the fiscal imbalances are being financed, through issuance of Treasury bills and overdrafts with the Reserve Bank, with destabilising consequences on overall macro-economic instability,” Minister Chinamasa said.
He said money creation, through domestic money market instruments, which do not match with available foreign currency, only served to weaken the value of the same instruments, translating into rapid build-up in inflationary pressures to the detriment of financial and macro-economic stability. As such, Treasury will adopt fiscal anchors for the 2018 Budget to halve the annual deficit to below 4 percent of GDP, and subsequently cap all deficits below 3 percent, in line with best practices and financing capacity of the economy.
Other measures will entail keeping the ratio of public debt to GDP below 70 percent, as provided for in the statutes, keeping the ceiling of public borrowing from the RBZ below 20 percent of the previous year national revenue and progressively reducing the share of employment costs in the Budget to initially 70 percent in 2018, 65 percent in 2019, and below 60 percent of total revenue by 2020.
