HARARE – Zimbabwe risks plunging into a fiscal crisis this year due to governance failure, The World Economic Forum (Wef) has warned.
“Given the public service situation that the country is faced with and its failure to meet the International Monetary Fund (IMF) prescription to drastically cut its wage bill, a fiscal crisis is looming in 2016,” the Wef said in its Global Risks Perception Survey 2016.
The global economic think-tank noted that Zimbabwe has a 61,5 percent probability of getting into a fiscal crisis, that could see government failing to meet obligations with the revenue collecting authority missing targets.
This comes as the central bank recently said that government had to enforce fiscal consolidation encompassing of the reorientation and rationalisation of expenditures or risk remaining in a negative fiscal deficit.
In its quarterly report for the nine months to September 2015, the Reserve Bank of Zimbabwe (RBZ), said government had an overall budget deficit of over $260 million in the nine months and risked remaining in an adverse fiscal balance position.
According to the report, the budget deficit was partly financed through domestic borrowings, through the issuance of Treasury bills as monthly government expenditures generally outpaced revenue collections for most of 2015, resulting in accumulated adverse fiscal balance.
During the nine months, revenue collections by the Zimbabwe Revenue Authority (Zimra) were four percent below the comparable period in 2014, and nine percent below the target, largely on account of subdued economic activity leading to low corporate tax inflows.
Zimra data also shows that revenues from income and profit taxes declined by 12,8 percent for the period January to September 2015, compared to 2014, as both the corporate taxes and PAYE underperformed.
These declines were partially offset by the increased performance of the Value Added Tax (Vat), excise and custom duties.
Despite this, the central bank report highlights that cumulative government expenditure amounted to $2,9 billion.
Finance minister Patrick Chinamasa and central bank governor John Mangudya last year told International Monetary Fund chief Christine Lagarde in a Letter of Intent that revenue shortfalls in the country made it difficult to achieve a balanced fiscal position.
Zimbabwe has run successive budget deficits averaging 2,59 percent of GDP between 1990 and 2014, reaching a record low of 7,51 percent of Gross Domestic Product (GDP) in 1992.
The fiscal deficit was expected to narrow to below 0,5 percent of the country’s GDP in 2015 from 2,4 percent recorded in 2014 on improved revenue collections and rationalised government expenditure.
According to Chinamasa and Mangudya, government is rationalising the country’s public service establishment in order to generate savings on employment costs and seeking cuts in lower priority current and capital spending while safeguarding priority social spending.