Current fiscal crisis a Chinamasa creation, he must resign
By Jacob Mafume
Chinamasa’s midterm fiscal policy review statement of the 20th of July 2017 paints a gloomy picture of the Zimbabwean economic future, it is an insult to the aspirations of Zimbabwean and a reason why the masses must be angry.
The statement is an unsolicited guilty plea entered before the accusations of mediocrity and habitual dereliction of duty are pressed. The Minister of Finance has redefined failure, the failure to respond to the challenges the economy is facing.
The statistics presented in the midterm statement are appalling, paying a Minister of Finance whose term is just but a redefinition of failure can only happen under a ZANUPF government, Zimbabweans must be angry.
That the budget deficit is widening is a cause for concern, it is a threat with potential to cause fiscal implosion. Chinamasa’s statement of yesterday claims the government has over spent by close to a billion which is a disaster.
A debt crisis is also brewing, a conformation of a debt over hang amounting to US$11,3 billion with the external debt at 7,3 billion and domestic debt reaching 4 billion is also a cause for concern.
Part of the 73% external debt owed by central government includes half a billion assumed by government from the RBZ, a reflection of the dangers that quasi-fiscal activities pose on an economy, sadly Chinamasa’s approach is a return to similar malpractices.
The People’s Democratic Party recently stated that the RBZ has since returned to its extra-legal activities which include a loan facility for higher and tertiary education, over 70 million for women’s projects, payment of ZESA’s ESKOM debt and the Bond Notes arrangement with Afrexim Bank.
Borrowing from the domestic market through the issuance of toxic treasury bills and bonds amounting to 40% of GDP has crowded out the private sector which is now failing to access credit for investment erasing any hope of decent employment for the working people of Zimbabwe.
Due to the non-performance of the Treasury Bills held by commercial banks current levels are now at 1, 7 times the level of bank equity capital.
What is irking to us is not only the inability to deal with the structural challenges, but more importantly the man-made problems which are all of Chinamasa’s making.
His biggest mistakes were to act clever and depart from the fiscal discipline of the Government of National Unity.
To monetise the deficit, Chinamasa raided the RBZ worsening the crisis, a crippling liquidity crunch has ensued as a result.
We have made this point consistently that the banking crisis is a result of government’s raid of NOSTRO accounts and RTGS balances at the Central Bank.
The IMF Article IV report captures this point in detail:
“The RBZ’s overdraft facility, in the absence of sufficient cash reserves, set in motion the creation of money in the nominally dollarized economy. Government entities spend the borrowed funds by crediting bank accounts of the payment recipients through RTGS electronic system. These transactions increase deposits in the banking sector, but without a concomitant increase in the quantity of US dollars available in cash or external (NOSTRO) accounts.”
A basic reading of Keynesian Economics books must have told Chinamasa that the “Eat What You Kill” statement invented and popularised during the GNU was an existing principle of economics which entails the need for fiscal discipline.
Chinamasa’s belief that rules of economics can be rigged is a major contribution to the fiscal crisis in Zimbabwe, it has created a crippling crisis which has seen the few existing companies lose millions in hours spend by employees in banking queues.
Machine gun kind of reactions including drastic withdrawal limits, creation of bond notes have also sent distorted signals into the market resulting in inflation.
The People’s Democratic Party President Tendai Biti will soon deliver a State of the Economy Address (SEA) in which a proper diagnosis of the broader economic crisis will be made.
In the meantime Chinamasa must take responsibility for creating a fiscal crisis and resign.
Together Another Zimbabwe is Possible