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Presented by Dr. Rogers Dhliwayo, Economics Lecturer, UZ

The cost of the national debt is one of Zimbabwe's economy "bugbears." In the 1999 budget, the Government is expecting an interest bill of $21.6 billion. This is more than three times as much public spending on health in the millennium budget. Worse still, a lot of the government debt is short-term and is on floating interest rates, so it constantly has to be refinanced. This debt situation is "absolutely unmanageable". Imaginative measures should be unveiled, aimed at letting the Government borrow at longer periods and at lower rates. Such measures include turning domestic debt into foreign debt, lengthening the average maturity of domestically traded Government debt, improving the management of debt issues, and numerical limits on the accumulation of debt and deficits. These measures will lock-in inflation, interest rates, stabilise public finances and the exchange rate.

Privatisation and commercialisation of public enterprises should be speeded up to reduce the financial bleeding of the economy through parastatal losses. Proceeds of privatisation should be used to retire debt.

If Zimbabwe is to stop its debt from growing as a share of GDP, it is vital to maintain a "primary" budget surplus (surplus before interest payments) of 3 % of GDP. A primary surplus of 3 % of GDP will keep interest rates below the "stratosphere".

Enhancing the control of Government expenditure through the adoption of a cash budget system could be adopted. Several countries in the region have used institutional changes in order to assert more effective expenditure control. One example was the decision in Zambia announced by the Finance Minister in 1993 to adopt a cash budget. Zambia faced a spiralling deficit and increasing macro-economic instability. There was an urgent need to reassert control over spending and, relatedly, to re-establish the Government credibility in controlling the deficit. In theory, the cash budget requires a balanced budget on a month-by-month basis. In practice, this is translated into a requirement that the authorisation of spending match the accrual of revenue. The attractiveness of the cash budget is that it provides a formal framework that sharply decreases discretionary powers in the authorisation of spending. The Government's public commitment to the framework or "rule" makes it costly for officials or politicians to violate the rule. In this way, the cash budget operates as a credible public constraint on spending. Cash budgets are an institutional remedy to excessive fiscal deficits, in particular by allowing the Finance Minister greater expenditure control over line Ministries.

Reducing capital expenditures as a means of cutting Government borrowing/budget deficit is not an optimal policy. The optimal policy should be to cut recurrent expenditure via rationalisation or abolishing some Ministries, suspending official travel, limiting civil service salary increases and streamlining the civil service.

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The major objectives of the 2000 budget should have been to stimulate growth, stabilise the economy, combat unemployment, and improve competitiveness and living standards. Because the 2000 budget fails to address these important economic issues, it should be revisited or rejected.

The route to macro-economic stability depends on a large reduction in non-interest recurrent expenditures - of about 24 % of GDP. With civil service and pension transfers consuming a high proportion of non-interest recurrent expenditure, the fiscal challenge is defined by the need to consolidate and streamline the civil service.

The budget is the most important economic policy tool of the Government and provides a comprehensive statement of the priorities of the nation. As representative of the people, Parliament is the appropriate place to ensure that the budget matches the needs with available resources. Such an exercise demands detailed engagement with the budget, a potential that is wasted in the present set-up. Currently, the powers of Parliament to engage with and change the budget are not defined, with the effect that the parliamentary budget process is largely a symbolic value. The following steps must be taken to strengthen the parliamentary budget process;

  • amendment powers to reduce expenditures as well as mechanisms to engage with taxation (the balanced budget provision);

  • national expenditure reports should be published regularly; and

  • creation of an independent parliamentary research service and a joint permanent Public Account Committee.

The parliamentary budget process is currently interrupted by the introduction of the supplementary budget. The introduction of the supplementary budget confuses the budget debate and stretches resources. In effect, Parliament is required to assent to a supplementary budget before even passing a "new" budget. It is recommended that the two processes be disentangled.

Defence expenditure should be reduced drastically in line with available resources and capacity. Money saved can be channeled towards the critical areas of health and education.

For the budget to become an instrument of socio-economic transformation, it has to be restructured from its current focus towards a more developmental role. This involves identifying the core business of each ministry before allocating resources.

Civil society must take part in the budgetary process because they are experiencing poverty when in fact the resources they have generated are being misallocated.

© Friedrich Ebert Stiftung | technical support | net edition fes-library | August 2001

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