Intensifying government bankruptcy
http://www.theindependent.co.zw/
February 8, 2013 in Opinion
A WEEK ago, many newspapers and other media reported that Finance minister
Tendai Biti stated that, after payment of January salaries to the civil
service, the balance remaining in the state’s coffers was US$217, evidence
that “government finances are in paralytic state”.
Column by Eric Bloch
Almost immediately after the release of those reports, the minister said he
had been quoted “out of context”. There was no reason to doubt the veracity
of the minister’s contention that the reports were misrepresentative of what
he had said.
Nevertheless, the Zimbabwean fiscus is in a parlous state, as disclosed by
the minister in his four annual budget statements and three mid-year budget
review statements. The magnitude of the state’s impecunious circumstances is
also irrefutably evidenced by both the extent of its indebtedness, which
exceeds US$11 billion, most of which debts are long overdue for prescribed
settlement.
The intensity of the lack of fiscal resources is also incontrovertibly
demonstrated by the considerable extent to which government recurrently
fails to effect timeous payment for essential services which the state is
prescribed to provide.
Critical, albeit substantially unpalatable actions are necessary to address
and reverse the government’s impecunity. Funding must be generated as
rapidly as reasonably possible to enable timeous payments of the state’s
operating costs (of which the greatest portion is the salaries of the civil
service), funding for rehabilitation of the decimated infrastructure that is
essential to the proper functioning of the economy, and the wellbeing of the
populace as well as the progressive settlement of debt.
Simultaneosly, very stringent and effective diminution of expenditures is
essential.
The generation of enhanced revenues is a near impossible task insofar as
recourse to taxation measures are concerned, for Zimbabwe is already very
heavily taxed at levels greater than prevail in much of the region.
Increases in taxes not only compound the hardships which confront most of
the population, but also constitute intense deterrents to economic growth in
general, and the motivation of much needed investment in particular.
While effective policing of taxpayer compliance is an ongoing necessity,
such policing must not be excessive, oppressing and unjust. The most
effective way of achieving increased inflows of taxes is to ensure economic
growth, thereby broadening and increasing the tax base without intensifying
the tax burdens of current taxpayers, save and except if their taxable
incomes increase.
However, some significant enhancement of revenue inflows to the fiscus would
be achieved if government more effectively contained the extent of tax
evasion in general, and of import duties in particular.
It is a fact that huge quantities of goods enter Zimbabwe through unlawful
channels, thereby evading customs duties, value-added tax, and other
imposts.
However, the most constructive manner to progressively bring into being a
financially stabilised fiscus is the containment of government expenditure,
and the opportunities of doing so are manifold. The minister has intimated
an intent by his ministry to be very heavily focussed upon cost-cutting by
government, including achieving a meaningful reduction in the size of the
civil service.
Yet another ready opportunity of achieving diminution in government
expenditure is vigorous action to contain the immense corruption
characteristic of government in Zimbabwe, which involves many of the
personnel employed by the state in general, irrespective of rank.
The solicitation of “handouts” to influence the award of contracts impacts
negatively on contract prices; the expropriations of diverse consumables
from the stores and offices of government are substantial contributors to
costs, as are also the unauthorised usages of state assets.
Expenditure reduction can also be achieved by diminution of government
delegations repeatedly travelling abroad. In like manner, Zimbabwe should
seek to reduce not only the excessive number of embassies and allied
diplomatic presences abroad, but also the numbers employed therein.
A key area which must also be focused upon is disinvestment from parastatals
and effectively privatising them. That would bring to a halt the magnitude
of governmental subsidisation of those state enterprises, including
unnecessary assumption of the vast accumulated debts of those state
enterprises.
And, having for years deliberately avoided seeking debt relief by striving
to be accorded internationally recognised Heavily Indebted Poor Country
(HIPC) status, government now needs to pursue its declared intent to obtain
such status, which would not only result in rescheduling of much of Zimbabwe’s
debt-servicing arrears, but also progressive substantial debt forgiveness.
Presently, compounding the state’s parlous financial circumstances is that
it is absolutely essential that the already long overdue referendum on a new
national constitution is conducted, followed by presidential and
parliamentary elections, for the proper conduct thereof would be a
meaningful stimulant to procurement of investment, rebuilding of national
confidence and economic growth, with consequentially improved fiscal
inflows.