Govt tightens belt on spending

Tawanda Musarurwa
Senior Business Reporter

Government will operate below statutory requirements in borrowing from the Reserve Bank of Zimbabwe (RBZ) as it enhances its belt-tightening strategies in line with austerity measures announced in the 2019 National Budget.

Finance and Economic Development Minister Professor Mthuli Ncube has said Government will not go beyond 5 percent when it decides to tap into the RBZ overdraft facility.

This comes as official figures show that the Government has accumulated a $1,2 billion overdraft with the central bank.

The previous Government used to operate a ballooned overdraft facility with the RBZ that was offloading too much liquidity into the market, in the process, fuelling inflation among other ills.

Announcing the 2019 Monetary Policy Statement last month, RBZ governor Dr John Mangudya said the overdraft had exceeded statutory prerequisites.

“On overdraft, we are on $1,2 billion. If you go by the Reserve Bank Act it was supposed to be $800 million,” said the governor.

The Reserve Bank Act (Chapter 22:15) states that borrowing from the Reserve Bank shall not exceed 20 percent of the previous year’s Government revenues at any given point.

Minister Ncube, however, said measures have been put in place to curb Government’s domestic debt.

“You will see much more alignment between the fiscal policy and the monetary policy going forward. And our goal is to keep that fiscal tap closed, we will only open it slightly, we will live within our means and not tap into the RBZ overdraft facility.

“We have set a limit for ourselves of 5 percent. In terms of the statutory requirements, it should be 20 percent, but we need to do better. It will give the central bank more independence to fight inflation. We want to make sure that as Government we are not the source of growth of money,” said Minister Ncube.

The move to constrain internal borrowing is one of the key measures Treasury is implementing to fight the unsustainably high budget deficit, which economists say can have destabilising effects to the financial services sector, and the overall macro-economy.

The high deficit has resulted in the expansion of domestic debt from $275,8 million in 2012 to current levels of $9,5 billion against US$7,4 billion external debt, bringing total public debt to around $17 billion.

The financing of the deficit was largely achieved through domestic borrowing with the use of instruments such as Treasury Bills (TBs), the overdraft with the RBZ, cash advances from the central bank, arrears and loans from the private sector.

These financing mechanisms have had the effects of crowding out the private sector, thus constraining production.

They have has also increased money supply in the economy translating into exchange rate misalignment and inflationary pressures now above 50 percent, as at January 2019.

Minister Ncube has said balancing of the budget, in combination with several other measures pronounced in the 2019 National Budget, are a critical step in stabilising the economy.

And Government is beginning to yield dividends from its cash-budgeting and austerity measures, with Minister Ncube recently stating that Treasury has been cash positive in the first two months of the year.