eBusiness Weekly
Golden Sibanda
Public finances have been in perfect health for a good period now, amid revelations that Treasury has maintained surpluses in excess of $6 billion on its accounts at the Reserve Bank of Zimbabwe (RBZ) over the last 12 months.
The bulk of surplus funds held by Treasury have gone towards emergencies like drought (maize, wheat imports), natural disasters (Cyclones Idai, Kenneth), Covid-19 and capital projects (Dams and roads).
Secretary in the Ministry of Finance and Economic Development, George Guvamatanga, told an RBZ 2021 monetary policy review webinar early this week that with unbreakable fiscal discipline, Treasury had long abandoned costly recourse to the central bank window.
Guvamatanga reinforced the position that Treasury was very much on course to sustain current strong fiscal discipline, which has ensured inflation and exchange rate stability in the economy.
He said after the new dispensation reined in wasteful Government expenditure, and with a strong fiscal discipline, there no longer was risk of Treasury activities upsetting monetary targets. Fiscal discipline provides a firm base for a strong monetary policy, and without it, it would be difficult for the central bank to meet its monetary targets of inflation, price and economic stability.
It is for that reason that the secretary for finance said there was alignment and very strong working relationship between fiscal and monetary authorities through regular weekly meetings held to ensure their policies complement each other.
Guvamatanga said the latest Monetary Policy Statement came against measures taken to address economic structural flaws, which had been adversely impacting the economy.
Annual inflation, which stood at a lowly 5,39 percent in 2018, hit a post dollarisation high of 863 percent around August 2020.
This brought back flash memories of the hyperinflationary era when the inflation rate reached 500 billion in 2008, according to the International Monetary Fund (IMF), figures that the Government disputed.
RBZ governor John Mangudya, said the central bank was targeting monthly inflation of less than 4 percent this year and annualised rate, currently at 362 percent, to plunge to below 10 percent by year end.
These included the Government’s inability to live within its means through financing unplanned, unbudgeted and unsustainable subsidies, resulting in budget deficits.
In 2021, Finance and Economic Development Minister Mthuli Ncube, said he is targeting fiscal deficit of 1,3 percent deficit amid strict adherence to Public Finance Management Act rules, no more borrowing from RBZ, wage reduction and rationalisation of staff posts among others.
The Treasury chief said borrowing will only be limited to budgeted expenditures through market based operations. Subsidies will be limited to those in the budget while procurement rules will be strictly observed.
Guvamatanga said Treasury has worked hard over the last 18 months in order to remove previous structural flaws to anchor the economy on strong fundamentals.
“The other area that we have worked around to ensure we are on a strong fiscal trajectory, was just around wasteful expenditure by the Government, where now there is emphasis on proper procurement and value for money in all Government activities.
“So, that has seen us now not accessing the RBZ overdraft window over the past two years.
“The Governor can actually confirm that as a (new) Government, we have not gone (back) to the Reserve Bank of Zimbabwe to borrow on the RBZ overdraft window,” he said.
Guvamatanga said when the new dispensation came, Treasury was sitting on an overdraft of more than US$3,3 billion, which has since been ring-fenced with the RBZ.
“After that, we have not in any way or form, gone back to the governor to use that window, which obviously results in very rapid increase in money supply, thereby creating serious problems (in the economy),” he said.
Another fiscal indiscipline Treasury has eliminated, he said, was the strong appetite to use Treasury Bills to pay for anything from motor vehicles, fuel, maize and medicals.
“Treasury Bills had become a defacto currency in the economy. All that, we have now made sure it no longer exists and that has actually resulted in very strong fiscal position.
“The Government is living within its means and in most cases the Government accounts at the central bank, the Governor can confirm, are actually largely in surplus.
“I think over the last 12 or 14 months we have maintained average balances of between $6 billion to $8 billion at the central bank. In the past this would have been a very huge overdraft facility,” Guvamatanga said.
