The terrible price Zimbabweans are paying for government’s extravagance




Eddie Cross

The present crisis that Zimbabwe is facing is a result of government’s extravagance as it is spending money that it does not have, Bulawayo South legislator Eddie Cross says.

The tragedy is that President Robert Mugabe did not address this issue at all during his official opening of Parliament.

Cross said Zimbabwe did well from 2009 to 2013 because it lived within budget under then Finance Minister Tendai Biti’s policy of “we eat what we kill”.

“If we study the situation which prevailed between 2009 and 2013 – in 2009 Madam Speaker, our Gross Domestic Product reached about US$4 billion and we collected just short of a billion US dollars in taxes and revenues,” Cross said.

“The following year, we collected, US$1.7 billion, the year after that US$2.8, the year after that US$3.8 and the year after that we budgeted US$4.3 billion.

“Madam Speaker, that is a growth in GDP of fourteen times in four years.  I think we had the fastest growing economy, not just in Africa but in the world.  This is what economists call ‘a bounce back’ because in 2008, we had the economic collapse with the collapse of currency. “

Cross said things dramatically changed after the 2013 elections.

“In 2013 when we had planned for an expenditure of something like $4.2 billion with the income of $4.3 billion, we spent $4.8 billion and the revenues to the State declined.

“They did not achieve the target of $4.3 billion.  In fact, we achieved less than 4 billion.  This created a 500 million dollar deficit in 2013 after four years during which we had run a Budget surplus.

“In 2014 and 2015, we further exacerbated the situation by increasing expenditure in the face of declining revenues.  I do not see how the Minister of Finance can claim that the economy of the country is growing, when revenue to the State is declining.

“Surely, growth in the GDP automatically leads to growth in taxes.  In fact, that was not the situation which was happening between 2013 and 2015.  In 2016, we simply took all restrictions off expenditure and in 2016 we now know that we spent $1.4bn more than we received in revenue.”

Cross said Zimbabwe now had the highest budget deficit in the region.  He said the average fiscal deficit in all SADC states is about 6%. In Zimbabwe, in 2016, the budget deficit was 30%.

“To make matters worse, in 2017 at the Mid Term Review when the Minister of Finance and Economic Development came and reported to the House on his half term results, he forecast that the budget deficit was going to rise to about $800m. He had planned $400m.

“In fact, since that review was presented to the House, the Ministry of Finance and Economic Development has discovered another $1.2bn worth of expenditure by line ministries which has not been accounted for.

“That raises our half year deficit to $1.4bn. At the same time, he retained the forecast of income at $3.8 billion, I do not believe he is going to achieve about $3.8 billion, I think he is going to achieve $3.7billion. This means also that his expenditure this year is going to exceed $6bn. This could give us a budget deficit of $2.3bn or $2.4 billion.” He said.

HON. CROSS:  Madam Speaker, I rise to respond to the Address by the President when he opened this Session of Parliament.  I want to raise a couple of issues of national importance that I think that this House should consider – the situation in which we find ourselves in today.  The situation in Zimbabwe Madam Chair, that I am talking about is the economic and monetary crisis which we face at present.  The situation is centred on one central issue which is the issue of the national deficit in the Budget.

If we we study the situation which prevailed between 2009 and 2013 – in 2009 Madam Speaker, our Gross Domestic Product reached about US$4 billion and we collected just short of a billion US dollars in taxes and revenues.  The following year, we collected, US$1.7 billion, the year after that US$2.8, the year after that US$3.8 and the year after that we budgeted US$4.3 billion.  Madam Speaker, that is a growth in GDP of fourteen times in four years.  I think we had the fastest growing economy, not just in Africa but in the world.  This is what economists call “a bounce back” because in 2008, we had the economic collapse with the collapse of currency.

The key to our stability during that period was the fact that the Minister of Finance followed a very simple principle.  He said, “we eat what we kill”.  In other words, each year we run a small Budget surplus.  Members of the House might not appreciate the importance of that but rising out of that single central policy, the country had monetary stability.  We did not have shortages of cash, we were to import everything we required and we met our bills externally on time.  2013 arrived and immediately, we did two things, there was a collapse of confidence in the market as the banks saw withdrawals of $1 billion, $1.5 billion left the stock market and was externalised and we know that about a billion US dollars fled the country via various other means.

As the consequence of these withdrawals from the market, the income to the State began to decline.  However, we did not adjust our expenditure.  In 2013 when we had planned for an expenditure of something like $4.2 billion with the income of $4.3 billion, we spent $4.8 billion and the revenues to the State declined.  They did not achieve the target of $4.3 billion.  In fact, we achieved less than 4 billion.  This created a 500 million dollar deficit in 2013 after four years during which we had run a Budget surplus.  In 2014 and 2015, we further exacerbated the situation by increasing expenditure in the face of declining revenues.  I do not see how the Minister of Finance can claim that the economy of the country is growing, when revenue to the State is declining.  Surely, growth in the GDP automatically leads to growth in taxes.  In fact, that was not the situation which was happening between 2013 and 2015.  In 2016, we simply took all restrictions off expenditure and in 2016 we now know that we spent $1.4bn more than we received in revenue.

When you talk to an economist about the budget deficit, the average fiscal deficit in all SADC states is about 6%. In Zimbabwe, in 2016, our budget deficit was 30%, one-third of our expenditure and income. That is completely unacceptable and unsustainable.

To make matters worse, in 2017 at the Mid Term Review when the Minister of Finance and Economic Development came and reported to the House on his half term results, he forecast that the budget deficit was going to rise to about $800m. He had planned $400m. In fact, since that review was presented to the House, the Ministry of Finance and Economic Development has discovered another $1.2bn worth of expenditure by line ministries which has not been accounted for. That raises our half year deficit to $1.4bn. At the same time, he retained the forecast of income at $3.8 billion, I do not believe he is going to achieve about $3.8 billion, I think he is going to achieve $3.7billion. This means also that his expenditure this year is going to exceed $6bn. This could give us a budget deficit of $2.3bn or $2.4 billion.

These numbers are just extraordinary in economic terms. We have to ask ourselves, how we have been financing this massive deficit in state expenditure? The answer is, we have been printing money. We have gone back to 2008. We are printing money recklessly. I received my MP salary on 4th October, 2017. It was paid into my bank account at Stanbic Bank and I have been drawing down on those resources from my bank. What arrived in my account was not US dollars, it was an animal we call RTGS dollars. It is money created electronically. If you add that sort of money to the other forms of money – when the Minister was here last week, he told us how massively the electronic transfer of money has grown in the last four years. It is amazing how we have switched from cash and cheques to this electronic form of transacting business.

The other forms of cash which we have been creating are things like Treasury Bills and debentures. When the Minister settled the debts of Hwange Colliery the other day, he gave them debentures. I have not seen the debenture terms but I understand it is ten years without interest. That is printing money. It is printing money recklessly because it bears no relation to our production as a country. If these forms of money are not supported by productivity or real growth, then the result is going to be inflation. I am not at all surprised that as we speak today there is a substantial premium on real money. The premium is anything from 50% to 70%. If I was a businessman in Zimbabwe with money tied up in Zimbabwe, and I want to tell you that there are a billions of dollars locked into our banking system which cannot find any outlet.

I talked to a manufacturer in South Africa the other day who exported fertilizer to Zimbabwe last year for the Command Agriculture Programme. He was owed $70m by the Government. They paid him in RTGS dollars. The money is sitting here in a bank account and he cannot get the money back to South Africa because he cannot convert that money into real cash. If he was to take that $70m and try to export it through the stock market, he would have to buy either PPC shares which are fungible or Old Mutual shares. If he bought Old Mutual, he would lose 70% of the value of his money. You cannot run a country like that. That is simple fiscal delinquency on a massive scale.

I was really quite shocked when the President spoke to this House and he did not mention this fact at all. It was not raised as an issue. He dealt with the question of our legislative programme purely and simply. To me, what he said was completely irrelevant because the real facts are that if you get your salary today, that salary is worth 30% less than what it was worth at the beginning of the year. By Christmas our salary will be worth half what it is worth at the beginning of the year. We are devaluing by stealth.  Every civil servant in the country and every person who works on a fixed salary is going to feel the pain by the end of the year because you cannot print money on this scale and imagine that you are going to get away with it. You are not going to. The consequences are going to be exactly the same as 2008. It is going to be rampant hyper inflation which is going to destroy savings, industries, people’s living standards and it is going to destroy the productive sector in Zimbabwe.

When a formal gold miner, not an informal gold miner because the bulk of informal gold is sold on the black market and they get paid in cash by the smugglers.  If I am a formal gold producer and I have sold my gold to the Reserve Bank, I get paid today 50% in real money and 50% in bond notes.  If I am a big producer and I give my gold to the Central Bank and I get paid in RTGS dollars. What can I do with those RTGS dollars? I cannot buy anything externally. Their value is depreciating every day.    I want to forecast now as we talk today that within a matter of months, the great majority of formal gold producers in this country will be bankrupt because, you cannot do that and  imagine that there will be no correspondences.

I understand that fully when the Governor of the Reserve Bank demanded that Zimplats release 80% of their foreign earnings to the Central Bank for allocation to other people, they refused to do so. They argued they have an agreement with the Government which allows them to retain their foreign exchange in the form in which we receive it and we can use it in that form. If we want to sell foreign exchange, we will sell it at the market rate. If the Reserve Bank takes 80% of the revenue of Zimplats and converts it into RTGS dollars, the way we were doing it back in 2008, Zimplats would be bankrupt tomorrow because they could not pay their bills and staff. For me, if I was President of Zimbabwe, that is the key issue I would address.

We have been conducting public hearings for the last three days under the Budget and Finance Committee. Yesterday, we were in Chikomba and the Chief of the district was there with us. He spoke at the end of the meeting very passionately and asked where the burial place of the Zimbabwe dollar is. Why has it died? He does not understand what happened but he does know that we killed it and we did kill it. Along with its killings, when independence came in Zimbabwe, Madam Speaker, the Z$ was worth two United States Dollars (US$2.00).  When I first started work in 1957 on a ranch in Matabeleland, the Rhodesian Dollar was worth two pounds.

Madam Speaker, running a currency properly and behaving correctly in terms of the principles is a straightforward thing to do, and if you violet those principles, you pay the price.  The price we have paid has been an enormous one – we have destroyed the accumulated savings of the country.  I worked for 50 years and for 20 of those years I worked as a Chief Executive of major companies.  I paid all those years into a pension fund.  I paid 20% of my salary into a pension fund, by law.  I paid more than US$1 500 000.00 into a pension fund, but because of inflation my pension today is $94.00 a month.  Madam Speaker, that is a terrible price to pay, and all of us have paid it.

For me, the great tragedy of the President’s Speech is he did not raise this key issue at all – he never discussed it.  I was astonished in the last three days in our public hearings at the extent of the anger amongst people at what is happening.  I think, we as a Parliament have to face reality and we have to call a halt to this reckless expenditure on our behalf.  I thank you.

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