What is the size of Zimbabwe’s economy? Finance Minister Patrick Chinamasa says it is $19 billion. Eddie Cross, an economist, says electronic transactions last year totalled nearly $180 billion, so the size of Zimbabwe’s economy is double that given by the minister and could be about $40 billion.
Below is in full contribution:
HON. CROSS: It is an honour to stand here today and start to debate in the House on this year’s budget. Your Committee of Finance has in fact consulted extensively inside the country on this issue. We held public consultations some months ago and then more recently, we met with all the key stakeholders in the economy.
The budget proposes measures to try and grow the economy of Zimbabwe. I think this is the key priority for the budget this year because there is no doubt about it that at the present levels of economic production in Zimbabwe, our budget is unable to meet our essential needs. Many allocations in the budget reflect that. The Minister’s efforts in this regard are welcome. The Committee expresses praise for the measures which he is proposing to take.
We also recognised that the Minister is trying to move away from business as usual and that this budget is an effort to try and start looking at our fiscal affairs in a new light and trying to engineer a situation which will put the country on a stable trajectory for growth and we welcome that. But, we must not underestimate the magnitude of our problems. The 2018 Budget remains highly consumption oriented. Seventy five percent (75%) of the revenue envisaged for 2018 will go to salaries. This is simply too much.
In addition to that Mr. Speaker, the budget deficit envisaged by the budget figures and the Committee is actually at variance with the Minister to some extend because we believe that the true budget deficit forecast is 1.9 billion dollars and not 700 million. The reason for that is that the figures that we have from the Blue Book do not tally in some respects with the figures he gave us in his Budget Statement. This is something that needs clarity. But I point out to the House that in 2016, the technical budget deficit of the country was 1.4 billion dollars. It can be reduced slightly to one billion dollars, we remove certain components in the budget deficit, but from a technical or fiscal stand point, the budget deficit in 2016 was US$1.4 billion. We believe that the budget deficit in 2017 will be closer to 2.2 billion than US$1.7. This constitutes a very substantial proportion of the GDP and it explains why we have a cash shortage. It is the key problem which confronts the Minister at this moment and time.
He has to get the monster of the budget deficit under control. He has to reduce it to a regionally acceptable level of about 3%. In his official budget statement, he makes that commitment to maintain budget deficit of US$700 million dollars but the Committee felt that this was not realistic. In fact, we expect that the budget deficit this year will be substantially greater than the forecast of the Minister if nothing is done about the issue of revenue.
In addition to this, we are concerned that the Ministry of Finance is in violation of the Constitution in many areas of fiscal management and we point out the following:-
- Non observance of debt restrictions and requirements in disclosure to the Parliament; we are in fact in violation of the maximum overdraft that the Government can hold at the Reserve Bank. This should have been reported to the House and the condonation of the House should have been sought.
- The question of providing resources for the implementation of the devolution exercise provided for in the Constitution Section 264 has not been made.
- Provision of 5% of gross revenue for local authorities, Section under 301 has not been met. This is the fourth year in which this violation has occurred. In addition to that, the Minister has an obligation under the Constitution to introduce a Bill to the National Assembly seeking condonation of unauthorised expenditure without delay and in any event, no later than 60 days after the extent of the unauthorised expenditure has been established and that is under Section 307.
- Furthermore, he has failed to introduce supplementary Appropriation Bill in the House providing for the issuance of the necessary funds from the Consolidated Revenue Fund and to close the gap caused by insufficient Appropriation Funds, Section 305 of the Constitution and Section 19 of the Public Finance Management Act.
- Finally, Mr. Speaker Sir, we are concerned that we are in violation of the principle in the Constitution, that all revenues of the State should be paid into the Consolidated Revenue Fund and only where a specific Act of Parliament requires or permits them to be paid into some other funds established for a specific purpose, that is Section 302 (b) of the Constitution. We feel that these violations of the Constitution require his urgent attention. Mr. Speaker Sir, I do not think that the House should condone these kinds of poor performance against established legislation, especially the Constitution.
Our recommendations Mr. Speaker Sir; I have mentioned the fact that we believe that the budget deficit in the Blue Book reflects a projected budget deficit of $1.9 billion as against $700 million and that is based on total expenditure approaching $7 billion and revenues of $5.1 billion. The revenue figures Mr. Speaker Sir, we feel are in fact quite realistic. He is forecasting total revenues from tax of $4.3 billion and the other revenues bring it up to $5.1billion target. The Estimates of Expenditure at $7billion, I think he is going to have difficulty holding it at that level.
Therefore, we once again face a situation where the projected budget deficit in the country is going to be over 10% of the GDP and this is simply unsustainable. We have to look at some way in which we can raise additional revenue. I personally have discussed the possibility of putting a small tax on electronic transactions and I have personally raised this with the Hon. Minister and not had any response. However, I consulted the Bankers’ Association and tax experts and I believe this is feasible.
Mr. Speaker Sir, the figures are extraordinary. The Hon. Minister estimates that our Gross Domestic Product (GDP) is $19 billion in 2018 but the total value of swipe transactions in 2017 was $76 billion and the total value of RTGs transactions, about $50 billion and if you add that, the total value of transactions through systems like ecocash, which constitutes another $1 billion a week; Mr. Speaker, we are looking at the total value of electronic transfers in 2017 of $180 billion. To me as an economist, that reflects the fact that our actual economy is much bigger, probably more than double the size of the figure estimated by the Minister. His figure only reflects the value of the formal sector, but if you add the informal sector trading into our national economy, we probably have an economy in excess of $40 billion.
Mr. Speaker, several months ago when you raised the idea that we could have a $10 billion budget, I was very skeptical, but the reality is; if our real GDP is $40 billion, then 25% of our GDP is $10 billion. Mr. Speaker Sir, I believe that we can cover the shortfall in our revenues. We can provide more money for our health sector; we can fund the Parliament of Zimbabwe properly if we put a small tax on electronic transfers. If we put 5%, five cents in a dollar on that, it is $9 billion of new revenue.
Mr. Speaker, I have spoken to our Committee and it is skeptical and has urged me to make sure that this matter is raised in the Committee in the next month or so. However, I think this is an urgent matter because we must resolve this question of our deficit and the only way to resolve it is to tax the people in the informal sector. If you put a tax on electronic transfers, it is easy and cheap to collect and everybody pays. If you step into an emergency transport taxi and you pay your fare using ecocash, you pay five cents to the Minister of Finance, it would solve our problems overnight. It will reduce expenditure on labour and salaries to 35% of our budget; it would eliminate our deficit immediately and give us resources to settle our bill with the multinational agencies. I think that we have to look at this.
I do not believe for one minute that Zimbabwe has an economy which is only $19 billion. Just look around you. I went to dinner the other night at a restaurant in town; it was packed to capacity. This is not a poor country, this is a country which is rich and I believe that our people would not object to raising funds in this way from our existing population and I urge the Minister to consider this. On expenditure and rationalisation, Mr. Speaker, it is very difficult to reduce expenditure and it is one of the toughest jobs in the financial game. Reducing expenditure on salaries is very difficult because you are dealing with people’s lives – [HON. MEMBERS: Inaudible interjections.] –
THE HON. SPEAKER: Order, order.
HON. CROSS: I do not believe that in fact our focus in this budget debate should be on reducing expenditure but it should be on increasing the cake, increasing the amount of money which the Treasury has to spend. I think that should be the real focus of the 2018 debate.
On the question of employment costs, 75% of the present budget – I will just point out to Hon. Members here, that is the highest rate of expenditure on employment costs for a Government in the whole of Africa. In Tanzania, it is only 22% of the Budget.
Mr. Speaker Sir, on the question of parastatal reforms, the Committee welcomes the Minister’s tough stance. He has made it quite clear that he is not going to allow parastatals to continue to lose money and not contribute to the fiscus; that if they want to remain in business, they must turn a profit and no debate. The Committee also welcomes the list of parastatals to be privatised, it is long overdue. At the beginning of the Government of National Unity (GNU), we decided that we would privatise 10 parastatals, the Minister’s list is much more substantial and I think the House should support him in every way.
Then is the Minister’s forecast on growth in 2018 of 4.5%. I hope this is modest Mr. Speaker. I think that with the measures being taken by the Government since the changes in November, I can see the private sector responding strongly with new investments. In fact, my contacts in the private sector are abuzz with new investors coming into the country and wanting to do things which they have been holding onto for many months or even years. I have seen for myself the new attitude, the new culture of work inside the Government where Ministers are coming to work early in the morning. The President, I understand comes to work at 7:30 a.m. I understand the President demands that people should be on time. Mr. Speaker, if that is the name of the game, I want to tell you that we could well exceed the growth forecast for this year. I think that will provide us with a real basis for moving forward in the future – [AN HON. MEMBER: Hear, hear.] –
On the question of social services allocations Mr. Speaker, our principle concern as a Committee – and remember we are not responsible for any one of the individual ministries, this is purely and simply from a macroeconomic point of view. Our principle concern Hon. Minister, was the allocation to health. Allocation to health is barely 5.8% of the budget this year, which is simply and totally inadequate. If we can resolve the revenue problems of the Government, I think the health budget must be the first priority – [HON. MEMBERS: Hear, hear] – we need to double the health budget and we should not shy away from that. We cannot run our hospitals with the kind of budget we have got here and we cannot expect our health professionals to work in this kind of environment. As a country, we simply have to make health a bigger priority.
The other question which we examined at length Mr. Speaker and which we are concerned about is the question of ECD. When the Government announced that they were going to extend compulsory primary school education by two years to include the ECD children, what they were doing is they were bringing something like 600 000 to 700 000 children into the school system. We needed 16 000 new classrooms. We needed goodness knows how many more teachers, 20 to 25 000.
When you make a policy decision like this, Mr. Speaker, to extend the education system for primary schools downwards by two years, you must provide for the changes financially, and to expect parents to pick up the tab for teachers, classrooms, school books and everything else makes a complete mockery of our commitment of free primary school education. This is a matter which must be addressed. If the Minister of Education is going to be required to provide two years of ECD education to all the primary school children in this country, we must provide the teachers and we must provide the necessary supporting infrastructure – no question.
On the question of the amendments to the Indigenisation Act, Mr. Speaker, the Finance Bill this year is a very substantial document. It is nearly 50 pages and this is usual. It is an American practice to use legislation as an omnibus vehicle for changing Acts, and that is what the Minister is doing here. Clearly, he is in a hurry to do so. Your Committee, Mr. Speaker Sir, expressed concern that a fundamental piece of legislation like the Indigenisation Act should not be amended in the Finance Act, it should be a result of the formal amendment of the Act itself, and that there should be a debate on this issue in the House before the changes are instituted. This is a vital piece of legislation and that was the main criticism of the Finance Act itself.
On the question of addressing the cash shortage, Mr. Speaker, all of us should have seen the massive queues at Christmas time as people went to their banks and tried to draw money to go home and they were unsuccessful. I know personally from my own bank, I was unable to draw cash for a month. No cash whatsoever. Mr. Speaker, we simply cannot carry on like this. We have to find a solution and I think the Minister and the Governor of the Reserve Bank have got to give real attention to this. This is not a peripheral issue. You cannot ask rural peasant families to use swipe cards. The unbanked community in Zimbabwe must be 70% of the population. They need cash. They do not need some kind of promise of money by and by.
How much time are our people wasting standing in queues unproductively? How many factories do we have that are short of staff during the day because they go and try and collect their salaries from the banks? I think there is a solution to this. Your Committee has considered this and in fact, made recommendations some months ago, but I think this needs to be addressed as a matter of urgency. The core issue is the budget deficit because that is absorbing all the liquidity that we have.
On the question of the inflation forecast, the Committee was rather critical of the Minister’s estimate. The Minister’s estimate is 3% for 2017 and 3% for 2018. Minister, we know that is a fiction. I spoke to one of the largest retail chains in the country a few weeks ago and the Managing Director told me his average inflation in the supermarket was 30%. Now, does the Minister think that the current increase in VAT returns is based on real turn over? It is not, it is inflation. I do not believe for one minute that we can expect inflation to be held down to 3% in 2018. It is more likely to be 15% or 20% and the reason is the informal market for foreign exchange. People are paying a 60% premium today for United States dollars to import goods and that is the thing that is driving inflation.
The other thing that is driving inflation is the shortage of goods in the economy. If you create a shortage of goods here, businessmen will take advantage of it. There will be people taking advantage and increasing prices. If you increase the cost of buying foreign exchange to import goods from South Africa or from anywhere else by 60%, you will see inflation. If you bring in regulations which require licences for imports and you bring in exchange control at the Reserve Bank, you will get rent seeking. One of the biggest importers in this country has told me recently he has to buy his import permits from intermediaries. In those circumstances, Mr. Speaker, it is perfectly understandable that we are going to have rapid inflation, and I think that finding a solution to that is not a question of just putting it in the hands of a committee appointed by the ZANU PF Politburo. It is an issue which requires all of our attention.
On the question of completing public sector projects…
THE HON. SPEAKER: Order. Please wind up. Your time is almost up.
HON. CROSS: On the question of Public Sector Projects, Mr. Speaker, when a Public Sector Project is not completed on time.
HON. D. SIBANDA: On a point of order, Mr. Speaker Sir. I propose that we extend the time for the Hon. Member since it is a budget report from the Committee.
HON. MANGAMI: I second.
HON. CROSS: Thank you Mr. Speaker. On the question of public sector projects, when Parliamentarians visit public sector projects around the country, they observe many public sector projects which are being delayed by the failure of Government to provide adequate resources. I think the new police accommodation along Enterprise road is a typical example which remains uncompleted in two years. There are many other examples around the city, but I bring Hon. Member’s attention particularly to the Tokwe-Mukorsi dam which was started in 1998 and only completed last year at a cost of $250 million when the original cost was $57 million. That is the price we pay for delays.
On the question of the national debt, Mr. Speaker, because of the big fiscal deficit we have been running, the national debt on the domestic front has been growing very rapidly and currently stands at about $14 billion overall. This is a continuing problem for Zimbabwe at a time when we can ill afford to incur additional debt, we are building up domestic debts in many different forms very rapidly.
THE HON. SPEAKER: Order. Hon. Majome, please take a seat.
HON. CROSS: We were very pleased to see the uncompromising stance which the new Government has taken towards this problem. We just would like to point out to Hon. Members that if you have holes in your bucket and you try and fill it from the top, all you do is put water on the ground. What we are doing right, now because we are not sealing, all the holes that were leaking, we are not making most effective use of our limited resources.
The other thing that is driving inflation is the shortage of goods in the economy. If you create a shortage of goods here, businessmen will take advantage of it. There will be people taking advantage and increasing prices. If you increase the cost of buying foreign exchange to import goods from South Africa or from anywhere else by 60%, you will see inflation. If you bring in regulations which require licences for imports and you bring in exchange control at the Reserve Bank, you will get rent seeking. One of the biggest importers in this country has told me recently he has to buy his import permits from intermediaries. In those circumstances, Mr. Speaker, it is perfectly understandable that we are going to have rapid inflation, and I think that finding a solution to that is not a question of just putting it in the hands of a committee appointed by the ZANU PF Politburo. It is an issue which requires all of our attention.
On the question of completing public sector projects…
THE HON. SPEAKER: Order. Please wind up. Your time is almost up.
HON. CROSS: On the question of Public Sector Projects, Mr. Speaker, when a Public Sector Project is not completed on time.
HON. D. SIBANDA: On a point of order, Mr. Speaker Sir. I propose that we extend the time for the Hon. Member since it is a budget report from the Committee.
HON. MANGAMI: I second.
HON. CROSS: Thank you Mr. Speaker. On the question of public sector projects, when Parliamentarians visit public sector projects around the country, they observe many public sector projects which are being delayed by the failure of Government to provide adequate resources. I think the new police accommodation along Enterprise road is a typical example which remains uncompleted in two years. There are many other examples around the city, but I bring Hon. Member’s attention particularly to the Tokwe-Mukorsi dam which was started in 1998 and only completed last year at a cost of $250 million when the original cost was $57 million. That is the price we pay for delays.
On the question of the national debt, Mr. Speaker, because of the big fiscal deficit we have been running, the national debt on the domestic front has been growing very rapidly and currently stands at about $14 billion overall. This is a continuing problem for Zimbabwe at a time when we can ill afford to incur additional debt, we are building up domestic debts in many different forms very rapidly.
THE HON. SPEAKER: Order. Hon. Majome, please take a seat.
HON. CROSS: We were very pleased to see the uncompromising stance which the new Government has taken towards this problem. We just would like to point out to Hon. Members that if you have holes in your bucket and you try and fill it from the top, all you do is put water on the ground. What we are doing right, now because we are not sealing, all the holes that were leaking, we are not making most effective use of our limited resources.
In the mining sector, Mr. Speaker, it is my personal view that the new Minister of Mines and Mining Development is probably one of the best Ministers we have ever had in this country and we are looking forward to receiving the first reports from him, but on the fiscal side we have a lot of work to do because from the fiscal perspective, Mr. Speaker Sir, we lumber the mining industry with a great deal of charges and burdens that they should not be carrying, $50 a mega litre of water, for example, when the general cost is $6 is just an example and it goes on.
I understand that a new economic blueprint is being developed and the Committee simply said that what we would like to see is a development plan based on both medium and long term plans for the Government. The last point I want to raise – [HON. MUSHOHWE: Inaudible interjections]-
THE HON. SPEAKER: Hon. Mushohwe.
HON. CROSS: Is the question of the parliamentary budget. I think in terms of the Committees of the House, the parliamentary budget is specifically our Committees’ responsibility. We have examined the parliamentary budgets in many other countries with a similar GDP to ours, countries with a similar size of parliament, Uganda for example. In Uganda the budget for parliament is US$120m a year. Our budget this year of US$57.2m is totally inadequate to make this Parliament work properly – [HON. MEMBERS: Hear, hear. ] – I want to emphasize here Mr. Speaker, we are not talking about Members of Parliament welfare, we are not talking about putting more money in the pockets of Members of Parliament. We are talking about giving Members of Parliament tools with which to do the job for which they are charged with in terms of the Constitution – [HON. MEMBERS: Hear, hear.] –
Mr. Speaker, we believe that the Minister should agree with Parliament’s request for a budget of US$98m and not a cent less – [HON. MEMBERS: Hear, hear.] – Mr. Speaker, the budget is the key instrument for policy under the present dispensation in Zimbabwe. It is the central part of Government’s efforts to make Zimbabwe work. I believe Mr. Speaker that the Minister knows exactly what to do. I believe he has done a great job in his draft budget. I would like to see this Budget applied for the next three months but I would like to ask him to come back to this House in April and do something about the revenue and something dramatic. I thank you Mr. Speaker.
