$217 in the Bank

I recently learned that Zimbabwe was left with just over $200 in the bank after paying civil servants. "If Zimbabwe was a private company it would have closed down," Zimbabwean finance minister Tendai Biti told reporters this week. But it appears that the Minister's remarks may have been taken out of context. According to NPR, he was making the point that the ministry does not have sufficient funds to run the upcoming referendum elections. The election will cost about 100 million dollars and the treasury has some 30 million.

The revenue streams, however, do need a boost as current expenditure on such things as teacher salaries cannot, in all fairness go down. The cost of living is quite high in Zimbabwe. I know this because I was home for the holidays. The government might look at raising taxes but on whom? The ongoing indigenization laws, which require foreign firms to yield 51% ownership to black Zimbabweans will push out investment "killing the goose that lays the golden eggs".

According to the 2012 IMF Staff Report on Zim, the strains on the budget come from domestic arrears accumulation of about 1% of GDP; an increase in employee allowances; and unbudgeted recruiting. The sluggish global recovery isn't helping commodity export receipts either.

Fiscal revenues stand at about 30% of GDP with taxes on income & profits and VAT & excises together making up about 70% of this. The rest comes from customs duties. On the expenditure side employment costs take up about 60% of fiscal expenditures at about 20% of GDP (a doubling since 2009). It is easy to recommend a cut to the wage bill but with unemployment so high this is not feasible. Nontax revenue increase might be the solution as the IMF staff recommend. The country needs to seek donor funding for the elections but adopting reforms ahead of the referendum is a key.