2019 Mid Year Budget Analysis

zimbabwe mid year budget analysis farai

I’ve had quite a few people ask me why I have judged the just-presented mid-term fiscal policy review so harshly. The reason is simple. That statement confirmed what I began to suspect was happening all along, particularly in the last few months. And that has been the reason for the massive upswing in the exchange rate, as well as in inflation.

Basically what has been going on is that Government/Ministry of Finance/RBZ (hereafter referred to as the Triad) have been printing money to finance whatever expenditure they deemed necessary, and this has been going on on two key fronts.

The first is on the foreign exchange market, where RBZ has been purchasing the surrender portion of all export proceeds, then parcelling it out to whoever they deemed deserving, at whatever price they saw fit regardless of how much they would have “bought” the currency for. The RBZ has not actually had the money to buy this currency, and so have simply been effecting electronic transfers to do this. Thereafter, they then issue Treasury Bills (TBs) to mop up the money they would have printed, and in their mind, they’ve sterilised the situation. In other words as far as they’re concerned it’s a zero sum game. Except it isn’t.

Let’s take this on a personal level. I don’t have money to buy something I want. But I have a credit card. So despite my earning capacity, despite my inability to afford, I just purchase on credit. I thus now have what I want, and ordinarily I have a debt I will need to pay at a future date. If I continued to do this indefinitely, I would appear like like I am doing well, but the debt of course would mount and eventually I’d be busted. Now in the national context, the problem is this “debt” is owed to the population of Zimbabwe, and instead of it being something paid in future, we are paying for it right now in the form of hyperinflation/diminished purchasing power of our money. So no, Mr Governor, it is not a zero-sum game. We are paying through the nose, bleeding as it were, to finance whatever games you are playing.

That’s one side of it. The other side of it, a similar structure, is being played by Mr Budget Surplus. In his case, he pays for expenditure again through printing, then mops it up through taxation. Once he receives the money back in the form of taxes, he now declares a surplus and spends the money again. As in the previous case, it is not a zero-sum game. The example I would use to explain this is when someone launders money, then declares it to be legit and spends it. It’s not legit, and it’s inflationary.

So basically the Triad is playing a game where they believe they can spend whatever they want, so long as they mop it up, or legitimise it in the form of a “budget surplus”. Unfortunately economies are not so easily fooled, and the result is hyper-inflation, which is where we are now. And that is the reason Mthuli has decided to suspend the publication of inflation figures; so we don’t see just how much we’re being screwed. Talk of hiding behind a finger!

Now I know they are justifying this activity by calling it “national interest”, “sanctions-busting” or whatever other lame excuse they will want to give for pillaging and raping the population of Zimbabwe, especially the pensioners and our kids who are now eating manhuchu for breakfast in schools we pay a small fortune for fees. And of course we the parents are no different, with what is even referred to as daily bread in the Lord’s Prayer now becoming a luxury.

The fact of the matter is they simply are taking what they perceive to be the “easy way out”, which is to print now and damn the consequences. This modus operandum was introduced by Mugabe/Gono, and it screwed the economy to the extent that our currency became extinct in what I believe was a world-first. A short ten years later, Zanu PF is about to do it again, and that is exactly where we will go if the above strategy is continued/executed in the second half of the year to finance government spending.

Instead of government looking to fund agriculture and infrastructure through printing, they should engage the private sector, who already hold the monetary assets they previously printed, and come up with a strategic and commercial arrangement to get this done through such parties. And of course they need to strengthen the interbank market so we get foreign investors and players coming in to meet other requirements such as grain imports. Such parties can finance the things that government wants to print for, and we can enjoy a stable economy in the process.

If the Triad really has the people of Zimbabwe at heart, and if they want to avert civil confrontation, then the solutions are there in the private space, and they don’t have to print a cent extra. Of course this deprives the cartels and hangers-on from Zanu PF their corrupt rent-seeking opportunities, but at least it progresses the nation. If on the other hand they want to continue on this mad path, then best properly arm those soldiers because you will need them soon. And you can kiss TSP, SMP, Vision 2030 and all such other plans goodbye.

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