eBusiness Weekly
As anyone at Alcoholics Anonymous will tell you, there is no such thing as “one little drink” for an alcoholic: they either go completely dry, never touching a drop and living a productive and normal life, or they guzzle it by the bottleful and end up in the gutter again.
In many ways this is what faces our national budget and accounts and indicates what is needed from the Government in general and the Ministry of Finance and Economic Development in particular.
We have been through two major cycles of printing money, with the first being a long cycle that started off with heavy borrowing, to the level when there was not much left over for the business and productive sectors, before the printing presses at Fidelity were taken up to full speed. The second was shorter, again starting with borrowing for current expenditure before it went out of control, but was stopped before the meltdown.
For more than two years now the Government has been like the sober alcoholics you can see on odd weekday nights streaming out of the AA headquarters, being functional and fanatically determined never to drift again. So the temptation to organise “just one little loan” has been resisted to remarkably high levels of determination.
To a large extent the Government has had to be even more hair shirted than most prudent governments, not only being prudent but showing that it is ultra-prudent.
Again this is a bit like the recovering alcoholic given a second chance. They have to show they are on the straight and narrow path and if they get a bit boring about how long it has been since they had a drop, families, friends and employers live with this.
This could be seen in the long, long drawn-out salary negotiations for the civil service, when the Government’s final offer, coupled with a little legitimate pressure, was accepted. The Government line, from beginning to end, was consistent. It wanted to pay civil servants more, at least in nominal terms, and was willing to do so. But the limits were rigid and unbreakable. Under no circumstances would the Government pay more than it could afford.
And budget reforms had seen the percentages of tax income for staffing costs fall to around half, so there was real money and real cash flow for all the other things that governments are supposed to do without borrowing. A subset of capital expenditure can be funded from borrowing, but even there only that which will produce guaranteed tax or fee revenue that can be used to liquidate the loans.
So the salary negotiations were, as has been the case in the private sector, being played at two levels. The employees wanted purchasing power increased, preferably to levels seen before everyone realised that the old RTGS system was chock-a-block full of what amounted to fake US dollars created out of nothing. The employer side appeared to have been given a global total with power to negotiate how that was cut up, but not to add another dollar.
Most large businesses will recognise the process. The finance manager gives the total, and the poor human resources manager, and even the operations managers, have to go in to bat with that limit. In many cases people are not even discussing the same thing, because of the fundamental difference between needs and resources.
The salary negotiations in most companies during this year have seen the welcome growth of staff being given a lot more information. Most employers have had to give more access to monthly and quarterly accounts of revenue and expenditure to change the focus of the debate from what do we need to how can we boost revenue and cut other costs to find more cash for wages.
And it looks as though the Government has done the same, arming the employer team with the figures, which in any case are now by law pushed into the public domain, and giving more discretion to the negotiators how to chop up the total when it comes to pay and allowances.
The resurrection of the economy from the intense phases of the lockdown, and the growing private sector salary scales allowed the Treasury to raise its limit as tax revenues from all sources rose, again in nominal terms. So we had, as a sign of good faith, ad hoc and unilateral awards made every few months, and even a jump in the final offer over the two or three months that was being talked about.
But has the Treasury kept within its limit? The signs are that the market believes it has. The exchange rate on the auctions has been remarkably static, with weekly changes of less than one tenth of 1 percent, implying that money supply is still tight at the present exchange rates. In fact most importers have made it clear the that the challenge now is not buying foreign currency, since that is readily available on the auction, but finding the Zimbabwe dollars to pay for it.
That particular complaint, incidentally, is a true test of whether the auction rate is truly market driven in terms of supply and demand. With demand limited now by cash flows internally, while supply appears to be growing with our balance of payments surpluses, we appear to have finally got it right. Importers are fairly obviously, with a handful of mavericks, bidding within a cent of the previous week’s rate.
This was seen again this week, and there had been plenty of time for market feelings to change since the announcement of what the global total could increase by.
The productive sectors, led by the Confederation of Zimbabwe Industries which represents the major importers, have been continually issuing warnings that the new-found stability based on fundamentals can only be wrecked by reckless spending.
While the monthly accounts the Treasury is supposed to gazette, have fallen slightly behind, the trend we all saw of growing budget surpluses based on actual revenues and expenditures was encouraging. And most major importers, being major corporations, can easily extrapolate the growth in total tax revenues from what they have to hand over each month in PAYE, VAT and customs duties.
Another interesting sign in the final agreement was the insistence that the annual bonus, a budgeted item, was to be spread out over two months, suggesting that someone was determined to keep within the cashflows from Zimra. We need to remember that the Permanent Secretary in the Treasury has a second very practical job, that of Paymaster General. Considering that Mr George Guvamatanga, who holds the two jobs, was brought up in an exceptionally sober banking environment, we can assume he ticked off the boxes of revenue, accumulated income and cashflows before letting anyone sign anything. After all he has to make the payments, and since his private income from investments he accumulated and added to from his final compensation deal are known to be higher than his salary, he would probably quit if his reputation was to be totalled.
Perhaps the most interesting change for the private sector over the last two years has been the ever greater ease of predicting Government operations. With professional technocrats running the Treasury and the Reserve Bank of Zimbabwe packing its policy committee with real business people, the Government is operating in much the same way as a very large company. It has quite different duties of course, but the financing and accounting side is now basically the same.
That has allowed the stability and trust to build up. Sober business people who hire production workers can actually understand and talk to similar sober people who hire nurses, teachers and police officers if they are all on the same page, talk the same language, and follow the same operational priorities.
