Broke govt cuts spending amid tight fiscal space

TREASURY has directed ministries to prioritise spending for the rest of 2024 as it focuses on wages and social service expenditures while cutting travel-related costs amid a tight fiscal space attributed to a sharp depreciation of the local currency.

The new thrust comes as the Zimbabwe Gold (ZiG) currency has depreciated sharply, losing 46% of its value since its was introduced in April to replace the battered Zimdollar.

The ZiG in September took a 43% depreciation against the United States dollar to US$1:ZiG24,39 from the prior day’s exchange rate of US$1:ZiG13,99, as authorities buckled under pressure to dump the command exchange rate.

This was also accompanied by a pledge by the central bank’s pledge that it would allow “greater exchange rate flexibility in line with increased demand for foreign currency in the economy”.

Government finances are further constrained after it awarded a backdated salary review award in October 2024 to the civil service.

In a circular dated November 13, 2024, obtained by NewsDay, Finance, Economic Development and Investment Promotion ministry secretary George Guvamatanga painted a gloomy picture.

“As you may be aware, the local currency unit (ZWG) recently depreciated by 43% against the US dollar resulting in a substantial mismatch between revenue inflows, collected in some cases, with a one-month lag and local currency expenditures that immediately adjusted to the new exchange rate, in the process severely constraining fiscal space for the last quarter of 2024,” he said.

“The imbalance was further exacerbated by a backdated salary review award in October 2024 to the civil service. Given the consequent limited fiscal space and the need to mobilise additional resources to fund critical inescapable expenditures that include the 2024 bonus award, food deficit mitigation support, 2024/25 agriculture input support and utilities among other critical requirements MDAs (ministries, departments and agencies) are, therefore, requested to prioritise their expenditure commitments during this period.”

Guvamatanga said to support the prioritisation programme, Treasury would implement complementary expenditure containment measures for the remainder of the 2024 fiscal year.

These include prioritising payment of outstanding unfunded payment runs and deferment of all local workshops with the exception of those granted prior approval by Treasury.

“Treasury concurrence for foreign travels shall only be granted where funding is provided by agencies other than government, local authorities and State-owned enterprises,” Guvamatanga said.

“Rationalisation of fuel for operational requirements by 50%. A revised schedule of fuel allocations to MDAs is attached as Annex (A)/50%.”

These cuts will be significant considering MDAs often abuse Treasury allocations through allowances related to domestic and foreign travel, as these disbursements are often way higher than what is needed.

Such malpractices continue to be flagged in the Auditor General’s reports on MDAs spending.

The ZiG’s volatility comes seven months it was introduced in the country’s sixth attempt to establish a stable currency in 15 years.

The ZiG in April debuted at an exchange rate of ZiG13,56 per dollar. It was on Friday trading at ZiG25,2836 on the interbank market.

On the parallel forex market, ZiG has depreciated to US$1:ZiG40 to ZiG50 from US$1:ZiG20 when the currency was introduced into the market early this year.

Treasury will later this month announce the 2025 National Budget in which many business membership organisations have asked for a tax reprieve.

Economist Gift Mugano said the revelations by the Treasury indicates that government is “broke and cannot meet its expenses”.

He said government must have grown the economy first and avoid being a milker through various taxes which was akin to “killing the goose that lays the golden eggs.”

Mugano said major tax contributors, such as the intermediated money transfer tax (IMTT), have seen their contribution to total tax declining to 3,41% from 16%.

“So when you see that kind of a decline from 16% to 3.4% of IMTT, and also for corporate tax declining from 15% to 9,5%, it tells you that government is in a mess,” he said.

He said IMTT had declined due to increased informality.

“Current statistics from ZimStats shows that 88% of jobs are in the informal sector. So basically, pay has gone down, and the informal sector is now big,” he said.

Mugano said government was also trying to curtail demand for payments at end of the year while clearing its payments by December 31.

“But the contractual agreement has been done, so they can’t run away from it. So maybe this will work next year, but still, that has got a ripple effect of bringing the government operation to a grinding halt.

“Government must look at ways on how they can rein in the informal sector, how they can increase production, and how they can power the economy in terms of energy,” Mugano said.-newsda