The Sunday Mail
It has been three months since Finance and Economic Development Minister Patrick Chinamasa presented the 2015 National Budget.
Some components of the Budget triggered concern, which has lasted up to today; none more so than the perceived high level of recurrent expenditure.
Many stakeholders have shared discontent with the supposedly extensive allocation.
The phrase “92 percent of the National Budget allocated to recurrent expenditure is too high, cut the wage bill” rang a chilling tone.
Policymakers have assured the public on their dissatisfaction as well as with the proportion taken up by recurrent expenditures.
Committedly, they have moved towards cutting the public wage bill with little hesitation. This perception of recurrent expenditures along with the resultant need to downsize the civil service has won widespread consensus and has become the predominant narrative for this year’s fiscal policies.
At this juncture, it would be timely to ponder that if 92 percent of the Budget is too high, then exactly what percentage should be committed to recurrent expenditure? Also, would our sentiments be any different if they took up, say, 80 percent, or maybe even a lower 50 percent?
Moreover, if not recurrent expenditure, which areas should be receiving the alternative allocations?
As much as economic stakeholders have overtly shared their presently-held convictions, none have made the effort to ask the aforementioned questions.
Yet, as a nation, we are already running with the firm conviction that “92 percent of the National Budget allocated to recurrent expenditure is too high, cut the wage bill”.
This is the same superficial economic understanding that allowed “the economy is correcting itself” to be adequate explanation for falling price levels in the country. Similar lax economic inquiry made “insufficient transparency between Government and fuel sellers” suffice explanation for our failure to benefit from low global oil prices.
We very rarely take the time to assess and critique our issues at a technical level.
That is unacceptable.
If we are serious about economic self-determination, the kind that demands that we manage our own economy at a globally competitive level of competence, we must start applying a higher level of economic understanding to our discourse.
We cannot settle on the conviction that “92 percent of the National Budget being committed to recurrent expenditure is too high, cut the wage bill” without any rigorous inquisition.
Such haste le aves us exposed to making misguided commitments today, which will have undesirable long term effects.
Specifically, there are two considerations which we seem to be overlooking which may be detrimental to the economy in the long term if we haphazardly act on our present convictions without further reflection.
First, where do we stand in satisfying the provision of goods and services derived from recurrent expenditure?
Recurrent expenditure is composed of Government spending on goods, benefits, and services offered to the public.
My initial response is to question the logic behind reduced spending on the civil service when as a nation we have a deficiency in our service delivery.
For instance, it is counterproductive to cut the workforce when numerous health centres are understaffed and our professionals are facing extended workloads.
Also, there is actually need for greater allocation to healthcare because about 90 percent of the country is living without medical aid.
This is just in one sector.
Our current economic situation elevates the need for essential safety nets. For instance, agricultural produce risks being low this year as the rainy season has already ended in most provinces without good harvest. Government has to spend on food supplies.
Likewise, many households are struggling to meet educational expenses. There is urgent need for Government to pursue fee waivers, targeted bursaries and other financial relief. These are just a few examples which credibly contradict the notion that our recurrent expenditures are too high.
In fact, our recurrent expenditures are actually lower than what is necessary.
The problem is not that our recurrent expenditures are too high. The problem is that we are not generating revenues to spend enough on recurrent expenditures! It requires an acute awareness to understand the difference between the two.
Zimbabwe’s situation is very similar to the one between Greece and its creditors. Initially, creditors like the International Monetary Fund pushed Greece towards austerity measures just as the ones they are trying to force on us.
This only worsened the Greek economy and made loans harder to service.
Now creditors are realising that they cannot expect a debtor to pay back loans by cutting on spending that creates growth.
A huge component of GDP is Government spending. Like Greece, Zimbabwe is already below the threshold necessary for recurrent expenditures to sustain economic stability, let alone incite adequate growth for debt servicing.
Further austerity will only contract the economy, making the reduction of Government spending undesirable. We should be looking at ways of generating more revenue in the long term which can only be done by expanding our tax base.
This leads to the second consideration.
If not services and benefits, where else should budgetary allocations have been made?
Well, Government also spends on capital formation which is mainly targeted towards infrastructure. Infrastructure tends to be separated into two broad subsets – industrial and social.
Unlike for service delivery, a country can place greater emphasis on industrial infrastructure development outside of Government spending.
Actually, as national deficits and sovereign debt have become pervasive worldwide, global trends are heading towards public-private partnerships (PPP), or outright independent private investment to finance industrial infrastructure.
On this basis, I would say that our dismay towards minimal Government allocation to capital expenditure is somewhat outdated and uncompetitive. The best identifier of future growth sectors is not Government; it is the private sector.
Hence, to stay competitive and increase the likelihood of growth in the long term, governments must not emphasise spending on industrial infrastructure as much as they should trying to attract it from the private sector.
There is indeed a basic standard of capital expenditure needed for social infrastructure (schools, hospitals, housing) directly from Government.
However, Government has no funds of its own as it cannot float bonds on international capital markets and has exhausted its loans.
It is very limited in the short term.
The prudent long term strategy then would be for Government to focus on attracting industrial infrastructure from the private sector; this would be with the intentions of creating a sustainable fiscal base through private sector expansion. I, therefore, believe that it is unwise to focus at present on how much Government allocates to capital expenditure in its Budget.
Conclusively, I encourage us to re-assess the pervasive conviction that “92 percent of the National Budget being committed to recurrent expenditures is too high, cut the wage bill”.
We should not be reducing our Government spending; we should be increasing our revenue through expanding the private sector fiscal base.
