Zimbabwe austerity measures grind to a halt

Prof. Mthuli Ncube

Zimbabwe’s Minister of Finance has declared the austerity measures officially over. Addressing the delegates to the ZANU PF 18th National Conference in Goromonzi Mthuli states that the government could afford to “turn the page on austerity” as he taburlated  the success of the two years old austerity measures. The minister claimed that a rise in spending this year and next would “bring about a  new life of renewal”.
Critics warned that his claims were overblown and that two years of spending cuts would continue to take their toll.  would it be correct that a line is being drawn under austerity. The minister indicated that by 2023 Zimbabwe will be operating under a budget of billions of United States dollars.

The minister has cast light into sources of the countries fortunes boasting of prospective income  of over thirty billion dollars a year.

The minister rightly said the increase represented the largest increase in at least 30 years and was a turning point after two years of spending cuts. He also topped up next year’s capital spending by over Six billion above the current and this would be in US dollars.

The annual public spending deficit – the difference between government income and expenditure – reached almost 200% in the wake of the financial crisis. Most of the traditional sources of advice – the International Monetary Fund, the OECD, the governor of the Reserve Bank said government spending cuts were needed to balance the books.

Under the old dispensation, the Treasury forced through measures that increased local authority spending by about 60% and imposed 40% over spending on many government departments. Public investment also came to a virtual standstill, bringing to an end years of improvements to hospital and school buildings and any infrastructure. The austerity measures then saw budgets not saved from Mthuli’s knife: The nation experienced hardships which were never seen since records began. Mthuli’s plan, was supposed to spur growth and reduce the government deficit – the gap between income and expenditure – to zero by 2022. Cuts to the schools budget were introduced two years ago, leading to widespread staff lay-offs and rising deficits, especially in secondary schools.

to show the effect of diminished government funds being spread across more people  with domestic debts being wiped out.

The economic crisis hurt businesses and the financial sector. While the government used all of taxpayer funds to bail out some government projects much of which has subsequently been recouped. the dramatic cuts in public spending meant ministers had reduced means to support households – the bedrock of spending in the economy – and the wider business community.

At the time, he proposed maintaining public investment, arguing that with borrowing rates at historic lows in the post-crash period, there was an opportunity to improve the infrastructure on the cheap.

With government unprepared to step in, businesses remained nervous about the future and private investment failed to take off. Un Employment jumped to a record high, but without an increase in public or private investment, productivity stagnated and wages rose more slowly than inflation, leaving household incomes depressed.

The Ispending plans were enough to reverse about two-thirds of the real-terms cuts to average day-to-day spending on public services since 2010. However, this achievement is even less significant when the  rising population is taken into account. On a per-capita basis, only one-third of the cuts are reversed. The average rise also masks substantial variation within the total.

These are commitments that are likely to limit the scope for further increases in departmental or welfare spending.

Reversing these cuts will take more than Mthuli is prepared to offer in his spending review. However, one would review the government’s fiscal rules, which bind the Treasury’s ability to lift austerity because they curb spending.

The person in the street will be expecting life to be easier. Removal of austerity entails that basic life expectations are now expected. There will be no hardships as the government will be chipping in where it becomes heavy.

As Mthuli explained yesterday the treasury always keeps some cash aside so there is cash kept for the betterment of life as we know it.

Austerity is a self induced  suffering meant to make tomorrow better.

As of now cash will be trickling back into our cash machines.
For the next few months the government will be buying the RTGS from banks in exchange with the new currency.  the idea is to completely wipe out the RTGS in order to remove two sets of currencies which fuels inflation.
Social services will now be fully subsidised and we expect a serious economic boom.
As for now Zimbabweans sits in great expectations hoping to see the great times unfold before their own eyes.

vazet2000@yahoo.co.uk