'Zim to monetise $400m deficit through ‘printing’ bond notes'

Harare – Zimbabwe’s central bank is likely to monetise the country’s $400m budget deficit for 2017 as it has started printing bond notes primarily aimed at boosting exports and remittances into the country, NKC African Economics said on Monday.

Finance Minister Patrick Chinamasa said last week that Zimbabwe will have a “trade deficit of $1.537bn (in 2017), compared to $1.985bn in 2016”.

Budget collections will be $3.7bn against expenditure demands of about $4.1bn, leading to a deficit of $400m.

Economic analysts say the deficit will be funded by the central bank’s printing of bond notes and issuance of treasury bills. Chinamasa cautioned against the continued issuance of treasury bills in his 2017 budget statement presentation.

Cephas Forichi, an analyst at NKC African Economics, said on Monday: “Given the country’s history of uncontrollable seigniorage and government influence over the central bank, there is a possibility that the apex bank will end up monetising the fiscal deficit.

“The central bank introduced bond notes in late-November 2016, backed by the $200m facility from the African Export-Import Bank (Afreximbank).”

Chinamasa said at a breakfast meeting on Friday that Zimbabwe was to cut its wage bill down to about 55% of its expenditure bill but this will only happen by 2020.

President Robert Mugabe has previously shot down the Finance Minister’s proposals to cut down on civil servants bonus payments for 2016 and other measures to lower public spending on wages, which takes up more than 90% of the budget.

“Up to 2019-2020, we should be able to reduce our wage bill to between 50-55% of expenditure,” Chinamasa said.

Economists say Zimbabwe’s economy is marred by a plethora of challenges such as fiscal and liquidity burdens as well as an operating environment that is not conducive for fresh capital.

This has resulted in company closures and retrenchments, weighing on fiscal revenue and hence limiting the fiscal space.

“In the wake of the underperformance in fiscal revenue, fiscal consolidation measures are called for,” Forichi said.
 
Other economists said Zimbabwe will be hard pressed to cover for the fiscal deficit in light of declining remittances and foreign direct investments as well as in the absence of support from bilateral and multilateral funders.

“The proposed 10 percentage point reduction in the ratio of employment costs to fiscal revenue to 81% in 2017 is not enough to stimulate economic growth through capital development projects,” added Forichi.