Questions on fiscal, monetary reporting
THIS statement released by Treasury arrested my attention: “Zimbabwe has been ranked number three in Africa in terms of budget transparency by the Open Budget Survey (OBS) 2019, a dramatic confirmation of the reforms of the Second Republic in its first full year. The country has a transparency score of 49 out of 100, and comes third after South Africa which has a score of 87 and Namibia 51.” (parentheses are not mine).
There is another development. In line with the recommendations of the International Monetary Fund (IMF), our monetary authorities are beginning to report on vital monetary statistics, especially on reserve money growth. It is an essential step towards restoring confidence in monetary policy and wider economic policy.
Transparency is vital. However, the accuracy of reported fiscal and monetary statistics is more important. Inaccurate reporting or attempts to conceal vital information to paint a favourable or less grim policy performance picture is likely to further dent confidence instead of rebuilding it.
Is Zimbabwe’s transparency on budget and monetary issues taking a massive positive leap? There are questions arising from the latest fiscal and monetary statistical reports. We shall first tackle the monetary-related questions, as these will logically provide the raw material for the questions on fiscal transparency and accuracy.
Reserve money questions
Reserve money was ZW$3,3 billion in June 2019. It more than tripled to ZW$10,335 billion within a space of six months. Reserve money, as per the latest update issued by the central bank on June 4, shows that reserve money was sitting at nearly ZW$14 billion at the end of May.
From the beginning of the year, reserve money has grown by close to 40%, nearly three times the reserve money growth target set by the monetary policy committee.
So there has been a growth of close to ZW$4 billion within a space of four months. This level of absolute growth is more of the total reserve money at the end of June last year. It is therefore confusing why our monetary authorities shifted the blame on currency volatility and inflation elsewhere. That is an aside.
We know that the gold incentive to small-scale gold miners began in September last year. We also know that the incentive was funded through reserve money growth — this is money printing in straightforward language.
We also know that the gold incentive was being funded by printing about ZW$400 million per month. It is not a secret that our authorities promised to stop the incentive in December last year, three months into the gold incentive scheme.
On May 26, six months after our authorities promised to stop the gold incentive, announced the cessation of the gold incentive scheme.
With these facts, we can estimate that the gold incentive scheme from September 2019 to May 2020, it caused reserve money to swell by about ZW$3,6 billion. From January to May, the scheme, in my estimate, could have added ZW$2 billion in reserve money growth.
My first challenge with the latest reserve money report is that it is totally silent on the exact drivers of this huge reserve money growth. Figures without context are not very useful. One driver of reserve money growth is the now purportedly discontinued gold incentive. Why has it apparently been difficult for the central bank to state in the reserve money growth update how much the gold incentive contributed to the growth?
We know from our most recent monetary history that the other drivers of reserve money growth were fuel subsidies and the discounting of Treasury Bills from favoured entities. It is a no-brainer that any reporting of reserve money performance should state the source of the reserve money growth. The heading Causes of Change in Reserve Money in the update is misleading — it is steeped in grandiose jargon that skirts around the issue of what exactly was driving the reserve money growth. The report should have granulated the generic productive sectors it mentions in passing as the beneficiaries of the reserve money growth. De-contextualised figures are tantamount to lack of transparency.
My second challenge on the reserve money growth report is the totals for currency in circulation. From the beginning of the year, currency in circulation has grown from ZW$1,077 billion to ZW$1,478 billion as at June 4.
It is in the public record that some of the central bank officials have admitted that cash notes were printed to fund the gold incentive. Given this public admission, the onus is on the central bank to explain how much of the reserve money growth to fund the gold incentive scheme that has been in operation for nine months was in cash and how much was in electronic money (Real-Time Gross Settlement balances). This will remove questions on the accuracy of the currency-incirculation figures.
We now have the brick-and-mortar to construct the argument on the claims of fiscal transparency.
Fiscal accuracy questions
Treasury, also recently, gave an update on budgetary performance for the first quarter of 2020.
Treasury reported that a budget surplus of ZW$77,6 million was recorded from January to April, achieved from an expenditure of ZW$17,9 billion.
The gold incentive is a quasi- fiscal activity, meaning it happens under the radar of fiscal the authorities — it is not captured in official fiscal expenditures. In the January-April period, Treasury reported a budget surplus. We have potential ZW$1,6 billion expenditure that was not recorded as government expenditure for the period.
Treasury is fully aware of the gold incentive. It is the silence on this massive expenditure that is baffling. More than likely, the true state of government expenditure for the period is a deficit running at more than ZW$1 billion. The cash budgeting system that Treasury can deliberately use to exclude unpaid expenditures for a period, thereby understating true expenditure, would not apply for the gold incentive as it is a cash-based payment.
It is not yet a new day for fiscal and monetary transparency.
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