Scraping the Bottom of the Barrel
For nearly 3 years the Government of Zimbabwe has been living beyond its means, not by a small margin, but massively. Deficit financing is nothing new but if it is not underpinned by growth, stability and confidence, it is simply not sustainable. Up to 2008 the State simply printed money to cover the shortfalls between revenue and expenditure. The consequence was a near total collapse and the instillation of a Government of National Unity.
It seems as if they simply do not recognise the dangers of this sort of economic delinquency. By my calculation the deficit in government spending since 2012 has reached mammoth proportions – revenues have declined and they have tried to maintain expenditure at GNU levels. In 2015 the deficit must have been at least $1,2 billion with revenues about $3,6 billion and expenditure $4,8 billion. It may have been a bit lower if they curbed some spending, but it could not have been less than $1 billion – that is 22 per cent of all State expenditure.
In 2016 the gap has widened still further with revenues 16 per cent below budget and 9 per cent below last year. Total revenues are now 12 per cent below the total cost of salaries and pensions.
To fund this gap, the State has been printing Treasury Bills and dishing these out to all and sundry in place of payments and debt and as a means of drawing in cash from the open market and State controlled enterprise with a cash surplus. This avenue is now exhausted – they simply cannot issue more TB’s and all available sources of cash are closed to the regime.
So now they have crippled the entire banking system by withdrawing cash from the transit funds flowing through the Reserve Bank. This has created a serious shortage of cash in the market which is being exacerbated by a collapse of confidence in the banks and massive cash withdrawals. Now a market for cash has emerged with a premium of up to 15 per cent. Business is no longer banking their cash as they seek to benefit from the shortage of cash and the available hard currency is being diverted into the informal economy.