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11 Apr 2014 00:00
At a crossroads: Finance Minister Patrick Chinamasa is hard-pressed to find funds for promised wage increases. (Reuters)
Late last month, Zimbabwe's Finance Minister Patrick Chinamasa stood in front of hundreds of police officers and apologised.
Like many government workers, their pay is coming in dribs and drabs and they have to make do with increasingly meagre resources as the state cuts back on spending.
"Our failure as treasury to meet your needs is mainly due to declining inflow of revenue into the fiscus, a situation I consider to be temporary," Chinamasa said. "Please bear with us."
It is a speech he will have to repeat to every other government department and, as the effect of drastic cuts in state spending spreads, to every Zimbabwean.
There is little sign Chinamasa knows where to get the money.
This week more data was released that only confirms how deep the debt hole really is. Revenue collection fell by 10% in February from the same period last year to $248-million. Consumer sales fell 30%, "reflecting intensification of the liquidity crisis in the economy", the treasury said. In February alone, 15 factories shut down.
"If you look at revenue collection in terms of developments in the first months of the year, I think our revenue has not been what we had envisaged in the budget," said Willard Manungo, secretary for the treasury.
With company closures depriving the state of earnings – VAT and personal tax account for a combined 57% of revenue – the government is now being forced to default on payments, the effects of which are now being felt across the economy.
Temptation to return to Zim dollar
With the real threat that it will fail to pay its workers this month, the temptation to return to the Zimbabwe dollar is growing. With its own currency, the country could print money to pay workers and pay off debts, even if this meant fuelling inflation to record levels.
But Manungo insists there are no such plans. This week, asked by MPs on whether a return to the Zimbabwe dollar was on the table – given the parlous state of government's finances – he appeared irritated by the question.
"This is an issue that the minister of finance has responded to over and over again. He has given assurance on this issue," he said.
But he failed to guarantee that a salary increase promised to state workers for April would be implemented. "We are mobilising resources," was all he said.
Already the government is un-able to pay its existing wage bill and unions fear it will be unable to afford to pay the promised April wage hike.
Apart from failing to pay wages, the state has begun defaulting on several other fronts. It has failed to pay off its workers' credit facilities with major stores such as Edgars, which has for years relied on extending credit to civil servants for a steady income.
Government debt is also rising, as its ability to service it falls.
Zimbabwe's debt is said to be above $10-billion. But, Chinamasa disputes that widely reported figure, saying the real figure is still being "verified" and that it is "between $6-billion to $7-billion".
The Independent Monetary Fund (IMF) wants to see a cut in "personnel-related spending" [IMF-speak for cutting government jobs]. This would be a major political risk, and Chinamasa said this is a step he is "not prepared to take". Some 70% of government spending goes on wages.
But, Chinamasa said a plan was being negotiated with major lenders. Token payments would be made, as part of the plan. "We've entered into a payment plan. It's a token payment because we don't have the capacity right now to service the debt."
Late last year the government announced it was taking over the $1.35-billion debt the Reserve Bank had racked up when it raided private accounts in recent years to fund government spending.
This week the government issued $103-million worth of treasury bills, the first step towards repaying the money. The bank owes $754.3-million to local creditors and $596-million to foreign lenders.
"We are requesting all the paperwork for the RBZ [Reserve Bank of Zimbabwe] debt so that everyone who says the reserve bank owes them [should] come forward to prove and confirm their figures," Manungo said.
Picking up the RBZ bill simply added more debts to the pile. Government departments owe $96-million in unpaid telephone, water and electricity bills.
"Such indebtedness arises when government departments overspend beyond the threshold of the budget," said Manungo.
The failure to pay off debts has stalled the few new investments that were on the cards. When Essar Africa agreed three years ago to take over 54% of Zimbabwe's loss-making steel maker, Ziscosteel, one of the conditions was that government would take over the company's domestic debt. Reflecting the debt trap that government finds itself in, it now plans to borrow money to pay off that $200-million debt.
"I have spoken to treasury to facilitate a loan to pay off the debt, which we hope will happen soon," said Industry and Commerce Minister Mike Bimha.
Although the government refuses to cut its workforce, it has had to cut back elsewhere. A major casualty has been the welfare budget. In January, the government announced it could no longer fund its school fees' welfare programme, the Basic Education Assistance Module.
Under the programme, 5.4-million children have had their school fees paid for by the state. With the government's withdrawal, thousands of children are at risk. Britain recently stepped in with $10-million in aid to keep over 250 000 children in school.
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