The Mid Term Budget Review

Someone said to me after the Minister of Finance had presented his midterm budget review in the House of Assembly this week, that this was a “Fudge It” review. I think that about sums it up. It was lengthy – 253 pages, took him two hours to present and contains a vast amount of information. But although it is more honest than recent pronouncements, it was less than frank on key issues and failed to report on many difficult problems confronting the country.

On the general economy he still tries to maintain that the local economy is growing. Why he does this in the face of so much negative data is a mystery to me. Exports are down, manufacturing is still declining; agriculture is down, fuel sales are down, tax receipts are down, electricity demand is down – and you still think the economy is growing?

I still maintain that the only indicator of general economic activity is the actual cash collections through the tax system. 2013 we expected $4,3 billion, 2014 was $3,8 billion, 2015 was $3,6 billion – now we have $1,7 billion in six months – annual revenues probably $3,4 billion. If we are collecting 25 per cent of GDP, that is a decline of economic activity by 20 per cent since 2013.

I see no evidence that they have curbed expenditure to any extent and planned budget expenditure for 2016 was $4,434 billion – the fiscal deficit in the first six months was $623 million so I guess we are headed for a billion dollar deficit in the budget. He gave us no forecasts and drew no conclusions at all – but a billion dollars is nearly 30 per cent of income and 23 per cent of expenditure – totally out of control and inconsistent with the fundamental undertaking given to the IMF.

The omissions are stunning – no mention of “Bond Notes” just a reference that we are not ready for the introduction of a new local currency and the continued commitment to the “multi currency system”. No mention of that mystery benefactor called the Afroexim Bank, no mention of “Command Agriculture”. These were all key aspects of the rhetoric coming out of the Ministry of Finance and the Reserve Bank in the past six months.

Then there are the national debt figures. I have studied the list of creditors shown in the Blue Book summaries and the schedule shown in the budget review statement. I am confused. I studied the Blue Book schedule closely and cannot find any connection between the debt incurred in a specific currency and the stated debt outstanding expressed (I assume) in US dollars. I found no calculations for the interest on the outstanding debt except the figures for arrears. The total debt declared at $4,28 billion bears no relation to the figures in the midterm statement of $7,457 billion.

Let’s assume that the Minister is trying to “fudge” the numbers. If we look at our list of probable outstanding liabilities the numbers are frightening:

Total declared external debt $7,457 billion
Potential farm compensation debt $11,400 billion
Debt Assumption from RBZ $1,700 billion
Deficit Financing 2013 to 2016 $3,500 billion
Debt owed to Commercial Banks $3,000 billion
Parastatal Debt $2,000 billion
Bad Loans taken over from Banks $700 million
Total $29,757 billion


Then you have new loans for which the State is a guarantor and these must exceed $2 billion today. Interest on interest bearing liabilities at (say) 5 per cent per annum on debt levels of this magnitude would not be less than another billion dollars a year – on top of the existing fiscal deficit of a billion dollars. It is a nightmare.

The Minister boasted that maize purchases of 175 000 tonnes worth $68 million had been paid for in full. How do they do that magic in this fiscal situation? The answer is that they pay the farmers in “plastic money” – the Reserve Bank transfers to bank accounts sums of money called US dollars but they have no backing. They appear in our bank accounts at Commercial Banks and are expressed in USD and we can try and get our money out of the bank – but in reality the money does not exist and the Minister is simply transferring the problem of paying the farmers to the Banks. It then becomes a liability on the Reserve Bank to the Commercial Banks and the liability of those banks to their clients. Ultimately, however the buck stops at the Treasury. Eventually we are going to be called upon to “dollarize” those accounts with real money.

The same applies to the $200 million a month ($2,4 billion a year for those who cannot do the maths) which the Reserve Bank is taking out of exporters bank accounts and replacing it with electronic transfers without backing. Add all of these liabilities up and this is the fastest growing feature of our national debt.

Sustainable levels of national debt are usually set at about 60 per cent of national GDP – if the revenue figures signal the GDP at $13,4 billion in 2016, then our national debt at $30 billion is a laughable 2,2 times our GDP. With nothing to show for it instead of poverty, decaying infrastructure and shortages of water and food, we are one of the most indebted countries in the world and are unable to pay even the interest on our liabilities let alone the capital sums borrowed.

The Minister deals with the liquidity crisis, but maintains the fiction that this is caused by the trade deficit – even though we use our own money for all imports and very limited credit is involved. He also blames capital flight even though it is the near total absence of confidence in the economy that is at the root of the problem. He does not quantify the problem even though we know that in January, the total cash on hand in all banks was well over $400 million falling to less than $40 million in August – equal to just $3 per capita.

Finally he deals with the engagement process with the International Financing Institutions (the IFI’s). He makes it sound as if we are still on track, still expecting to be able to settle our arrears with the three main institutions – the IMF, the World Bank and the African Development Bank. The harsh reality is that the process, into which we have sunk 4 years of hard work from 2012 to 2016, is dead in the water. New funding from any source is now impossible except where the new lending is to an agency with a possibility of repayment.

Any Chief Executive presenting this sort of half yearly report on the performance of a company would surely have to resign and hand over to new leadership or a liquidator. You cannot liquidate a country so new leadership is called for. In this case our Chief Executive was expected at the presentation; the red carpet was out, TV cameras in place and tight security all over the place. We sat and waited for 45 minutes for him to arrive – the Vice President in situ and also waiting for his majesty to arrive, but it was another no show.

We were given no explanation – just the unspoken understanding that the “Old Man” of Zimbabwean politics was not able to function sufficiently to attend this important occasion.

Eddie Cross
Harare 10th September 2016