..as mismanagement of funds is likely to have a negative cascading effect
Taurai Mangudhla and Tinashe Makichi
HARARE – Fiscal pressures on Government will remain pronounced this year driven by election-related expenditures and recently pronounced salary hikes for civil servants, BancAbc group economist James Wadi has said.
The assumption of debt from Public Enterprises is also expected to add pressure as this will entail higher interest payments to service the debts, Wadi said today in his presentation at the Zimnat Trade Finance and Trade Credit Insurance Conference.
Government is paying interest on external debt which currently stands at around $13 billion and a domestic debt of around $7 billion, a situation which has left less capital for infrastructure and investment.
“During the year, Government will remain reliant on domestic sources to finance the bulk of its budget shortfall. International donors and concessional lenders take time to warm up to re-engagement efforts.
“We are increasingly leaving a small portion for investment. In 2017 for every $100 that government is collecting, $90 went to wages and that forces Government to borrow,” said Wadi.
The budget deficit for the country is projected at around $1.5bln well above budget target of $672 million.
Government is a major player in the economy and its failure to manage the fiscus has a cascading negative impact on economic performance. According to Wadi, the country is going to experience slow economic growth this year due to subdued sectoral growth driven by weaker performance in agriculture, manufacturing and services.
He said free and fair elections are likely going to position the country towards an economic rebound as investor sentiment towards Zimbabwe will improve.
Going forward, reforms on public enterprises are likely going to turnaround economic performance with some already targeted for liquidation, privatisation and mergers.
“If things are made right, a double digit economic growth is achievable. We are excited by this new dispensation because such a paradigm shift has brought in a democratic dividend even on policies which are now addressing our teething problems.
“Possibilities of turning around the economy are huge. Going forward there is need to minimise delays in accessing forex for raw materials imports or relaxation of some of the surrender requirements. We have a chance if our current challenges are addressed holistically,” said Wadi.
Despite the current challenges affecting Treasury, the change in political leadership has brought with it a ray of hope and changing investor sentiments.
The International Monetary Fund has since revised economic growth of Zimbabwe to 2,4 percent in 2018 from 0,8 percent on the back of relaxation of some economic policies that were seen to be hindering business by the new political administration.
“We think the policy shift by the new Government will set the pace for economic recovery because unsustainable trade deficits over the years have contributed to liquidity challenges. Despite forex challenges, imports appear inelastic. Higher prices of local goods also tend to encourage consumption of imports,” said Wadi.
He said the country needs to come up with measures that improve exports in order to address liquidity challenges. These measures will entail coming up with trade finance and insurance mechanisms in the country.
Lawrence Nazawe of Continental Reinsurance PLC added that investments in trade finance and credit insurance ultimately facilitate the exit of poor economies from poverty traps and Zimbabwe must start following that for economic emancipation.
“Trade credit and insurance is a key financial instrument for exporters to manage risk. It’s a proxy for trade guarantee for companies to address working capital needs at the same time improving exports,” said Nazawe.
