/ 19 October 2012

Tendai Biti’s budget becomes a time bomb

Finance Minister Tendai Biti must make tough calls.
Finance Minister Tendai Biti must make tough calls.

As he kicked off consultations this week in preparation for the national budget he will present to Parliament on November 15, there has been mounting pressure on all fronts: public servants want salary increases, war veterans linked to Zanu-PF are demanding an increase in their pensions and Zanu-PF has upped the tempo of its call for early elections in March. The country's two largest cities, Harare and Bulawayo, have a crippling water crisis that could lead to a humanitarian disaster and the local authorities are demanding a large part of the budget to repair their infrastructure.

Earlier this month, the militant war veterans stormed Biti's office and demanded his resignation, which was seen by political observers as a harbinger of violent clashes should Biti's budget fail to address the protracted problems affecting the country.

Observers also say that the budget could become political, a point-scoring exercise between President Robert Mugabe's Zanu-PF and the Movement for Democratic Change (MDC), of which Biti is also the secretary general.

A budget that fails to cushion workers could be used to ratchet up anger against the MDC in the run-up to elections. Zanu-PF, through Mines and Mining Development Minister Obert Mpofu, has played up the perception that Biti is single-handedly blocking salary hikes to public servants, despite diamond mining companies in Marange allegedly paying huge amounts into the government's coffers. The state-linked Mbada Diamonds and Marange Resources companies have refuted claims by Biti of tax evasion and maintained they paid large amounts of tax to the treasury.

Charles Mangongera, a political analyst, said: "The MDC has to be aware that it will bear the brunt of any backlash on the budget by virtue of its control of the purse strings … The minister faces a tough balancing act."

Adding to Biti's woes is the International Monetary Fund (IMF), which has warned of tough times in 2013. It forecasts growth of 5% next year, against Biti's 8.9%. In July, Biti was forced to slash his predicted ­economic growth rate from 9.4% to 5.6% on the back of subdued diamond revenue collections, a poor harvest and the lack of donor funding. He announced a "we eat what we kill" policy.

Christopher Mugaga, an economic analyst, said the IMF forecast was more realistic. "I tend to go along with the IMF projection. We have elections next year and that in itself dampens any economic prospects for the country. So to think of an economic growth of above 5% is an exaggeration. We can't experience such growth in 2013."

Eric Bloch, a senior economist at the H&E Bloch consultancy, said Biti had to tackle several elephants in the room to come up with a sound budget.

"The minister must address the issue of the tax band. The majority of the people live below the ­poverty datum line of $540 but continue to be taxed. He also has to lead the way forward for the privatisation of loss-making parastatals such as Air Zimbabwe."

But there appears to be a glimmer of light at the end of the tunnel as Biti nears the budget deadline. Last month he granted the Zimbabwe Revenue Authority sweeping powers that have boosted tax collection. For example, it can now demand access to records on companies' premises.

In the authority's latest financial statement released on Monday, it stated that net collections for the third quarter of this year amounted to $823-million against a target of $822-million. This represents a 15% increase on the $717-million collected in the same period last year, according to Stenford Moyo, the authority's board chairperson.

Bloch said: "The results we have seen are not indicative of any economic growth, but show the renewed efficiency of the revenue authority. It has been energetic in pursuing tax compliance and the minister would do well to use them in future efforts to increase revenue collections."