What Fiscal Policy, Hon. Biti?

Finance Minister, Honourable Tendai Biti presented what he called his Mid Term Fiscal Policy Review. As expected, the presentation was dull. It just lacked direction and substance. This boggles my mind that what is it which Tendai Biti calls Fiscal Policy? I'm not questioning his policy by comparing it with other fiscal policies the world over but I'm looking at it individually and considering our current circumstances. Like I said before, it is directionless and from the content we don't get what he hopes to achieve. There isn't much consistency in his previous Fiscal Policy presentations; therefore we don't get a doctrine on what mechanisms are going to be employed to influence economic activity in a particular direction.

 The cash budgeting system is inappropriate. This spending what you eat is appealing to people because a sense of financial responsibility is implied but this is only appropriate in people's households and the like but when you are considering issues at the macro level or to some extent micro (paying special attention to firms not households) there is an incentive to take risk via adequate and appropriate spending (even if it means having deficits) to obtain sustainable economic growth. Proceeds from this growth will pay out the debt accumulated. Now this is different from households unless these households are involved in some kind of business undertaking. Therefore cash budgeting system renders a national budget ineffective as a fiscal policy tool to influence economic activity such as economic growth. But the purpose of Fiscal Policy is to influence economic activity and if the budget is toothless in doing so then you have got yourself a useless policy in the face of an economic environment requiring substantial growth. We can see this from the lack of funding for key sectors such as agriculture and insufficient RBZ capitalization.

The policy is also counter-cyclical in the sense that at the moment sustainable growth rates are needed but the policy anti-growth. A fiscal cliff in the form of new taxes and excise duties are upon us, dampening growth. Spending has been cut by almost 10% across the board with civil servants facing salary freezes and services experiencing cutbacks. This expected dampened spending will reduce aggregate demand, something not good for growth. Instead he blames the lack of revenue to less than "expected" diamond proceeds among other things but was his initial forecast of diamond revenue too optimistic? Considering the hiccups which had to do with the Kimberly process and current sanctions on our local diamond companies, his forecast, 6 months ago needed continual revision reflecting the situation at the particular times.

 Generally this Fiscal Policy was quite "defensive" because the whole budget is ineffective in influencing positive economic activity and Biti leaves the economy to be propelled by exogenous forces. Why be defensive when the country is in dire need of economic growth? The policy and especially the budget needed to be offensive to obtain sustainable growth rates. Careful risk taking in the form of obtaining debt to be used in investing in growth and eventually paying off the debt through higher government revenues accompanying higher growth rates is needed. This is were Biti's skills in fiscal strategic management were going to be tested but hey, he opted to act like an ostrich which puts it's head in the sand when danger appears, not knowing that it's going to be affected anyway by the dangerous situation.