Mid Year Budget Review
I just finished perusing the Mid Year Budget Review, and sadly it is another indicator of the doom that is lurking in the horizon of our future economic prospects. The future is indeed bleak. Unfortunately, the Minister of Finance and Economic Development, Mthuli Ncube has tried to cure a disease by doctoring the symptoms. Not to cover the whole budget, but critical areas that highlight my pessimism. Surely the calmness we have is the warmth that presages the storm.
Points to note:
Revenue Exceeded its target
Revenue for the first six months of the year where ZWL$4.99 billion exceeding a target of ZWL$4.15 billion. Sounds great right? Wrong! I draw strength from International Accounting Standard 29 (IAS 29) which is common sense accounting in hyperinflationary environments. The rate between USD and ZWL was about 1:4 in January and now it is hovering above 1:9.5
It is not wisdom to celebrate an increase in revenue generation which doesn’t compensate for inflation.
Such simple ballpark estimates would yield this: the target of ZWL$4.15 billion in January was factual almost equal to USD$1 billion and the revenue collected now is about US$450 million, which is in fact a reduction in revenue.
Expenditure exceeded target
Expenditure increase is mainly attributed to variances in exchange rate and inflation, so by similar logic presented analysing expenditure without adjusting for inflation or pegging the values is one frivolous activity to hide the real problems we have. It is unfortunate that the surplus is being celebrated without compensating civil servants fairly for their efforts which is a recipe for disaster. Civil servants are poorer than they were three years ago. Its illogical to celebrate a surplus in a household by not buying food for your kids or providing for their welfare.
The government is in a paradoxical situation, faced with two problems: The first being the problem of managing appearance where they want to give a veneer of optimism and lie that things are well without the fundamental economic principles in place. In this, the civil servants are suffering from loss of earnings in that the value of their labour has not been adjusted to meet the reality of the exchange rate difference. The second problem emanates from the first problem, the pending further recession due to repressed demand. With government punishing civil servants by not adjusting their salaries, local demand is weakened and most companies will feel the pinch. As one of the largest employers, the government budget management through punitive means of not rewarding their employees is a recipe for disaster.