Rising budget deficit mean fiscal indiscipline?

Howdy folks!

Numbers, as the saying goes, tend to conceal much more than they reveal.

And the trending ones last week were coming from the Treasury Quarterly Bulletin for the first quarter of the year.

Some folks were really absurd at how the budget deficit has apparently shot up compared to the same period last year, supposedly pointing to fiscal indiscipline on the part of government.

By doing a simple subtraction of revenue from expenditure, one will quickly realise that this year’s first quarter budget deficit surged by 44 percent to $230,8 million, compared to last year’s $159,8 million.

A naïve and hypothetical interpretation of numbers, and improper comprehension of macroeconomic issues, won’t tell anything else beyond this narrative. It ends here!

Folks, but we need to go deeper and aggressively interrogate the numbers further to see if they can reveal what is lying beyond their veil, so that we can have a better understanding of the country’s budget deficit situation.

In fact, the question we have to pose first is whether a budget deficit was not inevitable in the first quarter, so that we can see if it is worthy making noise about.

You see, the $4,1 billion National Budget that we have this year means that the average expenditure per quarter translates to $1,025 billion.

It also means that while revenue for the first quarter surpassed its targets by 7,52 percent to stand at $869,2 million (the highest compared to the first quarters of the past four years), it was still inadequate to meet the planned spending commitments of the quarter.

We can clearly see that already there was a difference of $155,8 million.

That alone tells us that a deficit in the first quarter was certain and inevitable, not just as a result of overspending, but because expenditure by its very nature was higher than the anticipated revenue. But how does that happen? Later, that will be addressed.

One might therefore want to say government overspent by $75 million and not the $230,8 million, since the other $155,8 million was a natural inevitability.

You see, if you look at the pattern of revenue collections you will realise that they are normally at their lowest in the first quarter, but rising to peak in the third quarter and then relatively edge down in the fourth quarter.

So revenue collection is not evenly distributed, yet expenditure fairly is due to the fixed nature of some of the major costs such as employment costs, with other fixed items being interest obligations.

Since we do not have reserves to utilise in times of deficits, the only viable options to deal with them in the short run are issuing out treasury bills or bonds and borrowing.

Short term borrowing is therefore another inevitability. If government is prudent in spending, it may actually offset the deficit with the excesses of the ensuing quarters by repaying the short term borrowings it would have incurred.

However, this is not to say that government is a saint in all this.

Clearly there is somehow evidence of overspending, to the tune of $75 million, in the first quarter. But let us begin by granting that there were unforeseen and unavoidable expenditures that arose in the first quarter.

These are often unexpected, at the time the National Budget is passed, and therefore cannot be accounted for.

No one could have certainly known that Government may incur expenses towards giving State-assisted burials to victims of the unfortunate horror crash that claimed nearly 50 lives along the Harare-Chirundu Highway last week Wednesday.

So within that $75 million, there is an element of unforeseen and unavoidable expenditure, which is understandable.

Folks, the country’s fiscal position is not that strong, as we mainly thrive on cash budgeting.

This means that we have to be however frugal when it comes to spending, and avoid the temptation of triggering more pressure on the little revenue that is coming through.

An old adage says if you find yourself stuck in a hole, dig no further. Going forward, government has to really focus on growing more revenue, as overspending will just result in further accumulation of the public debt through more borrowing.

Even the International Monetary Fund noted that spending pressures stemming from high employment costs, government transfers to support specific economic sectors, and elevated discretionary expenditure should be dealt with, while safeguarding social outlays.

Already we have seen unbudgeted civil servants bonuses being paid out.

Although Minister Chinamasa pledged to mobilise the resources, the worry is he may be competing with the private sector which is looking for the same resources to enhance their operational capacities. There is also need to focus on policies that promote growth of the economy and foreign capital inflows.

A recent report by the United Nations Commission for Trade and Development said that foreign investment inflows into the country declined by 24 percent.

Diaspora remittances also declined during the first quarter of the year.

The decline in these crucial sources of liquidity leaves the national budget under more pressure to foster economic growth.

It therefore means that government has to focus on more reforms that make Zimbabwe attractive in the very competitive market for foreign investment.

What is it that Angola, Ethiopia and Tanzania are doing that we are not getting right?

It is also imperative for Zimbabwe to expedite the conclusion of the arrears clearance strategy deal with multilateral lenders, to widen the country’s sources for concessionary capital; while the alignment of the long clarified indigenisation policy should also be given urgent attention.

But in closing, I do not think it’s fair to say that the rising budget deficit shows that government was that reckless with spending as there is an indication that it did try the best under circumstances.

There are also signs that even the trade flow is responding to other government measures aimed at reducing the trade and current account deficits, and improve the liquidity situation in the country. Looking at exports for the first quarter, one realises that they surged by 16 percent to $723,8 million. Although imports edged up by 3 percent, they are now mainly dominated by capital goods and raw materials that are being used to promote deeper industrialisation in the country’s economy.

Later folks!

3,610 total views, no views today