Biti describes Chinamasa’s mid-term fiscal policy as feja-feja economics

Former Finance Minister Tendai Biti today described Finance Minister Patrick Chinamasa’s mid-term fiscal policy statement as feja-feja economics because Chinamasa was spending money that the government did not have and was literally printing the United States dollar.

In his contribution to the debate on the fiscal policy announced on 11 September said the assumption that one can eat what one could not kill was bad economics.

“The essence of sound economics which an ordinary mother in Chiendambuya, Tsholostho, Nkayi or Dotito will know that if you are going to produce US$2, you can only spent US$2. If you are going to produce US$2, you cannot spend US$20, it is simple economics.

“You do not have to listen to Paul Volcker or Allan Greenspan; 2 + 2 will always be equals 2, it cannot be equal to 20. This is where I have a fundamental problem with the esteemed Minister of Finance and Economic Development,” Biti said.

Biti said he did not just want to blame Chinamasa but also offer solutions.

Firstly:

Let us live within our means.
Let us have macro-economic and micro-economic stability.
Let us stop borrowing beyond our means.
Let us at the very minimum maintain both a current balance and a primary balance to the budget.

Secondly:
Let us find money to put to the productive sectors. The economy is not producing so, let us produce, produce and produce and put money in manufacturing. Bulawayo, Harare, Mutare, Gweru and Masvingo are now ghost towns. Let us put money into industry.

Thirdly:

Let us conclude the Zimbabwe Accelerated Debt and Development Strategy (ZADDS).
Let us find a solution to liquidate Zimbabwe’s debt crisis of US$8.8 billion. It is critical that we conclude successfully our discussions with the World Bank and IMF so that we can find access to the huge billions of funds that are sitting in H-road in Connecticut road in Washington D.C.

Fourthly:

Let us put a full stop to the land question. Everyone farming must have some kind of title to land. I do not care, Madam Speaker, whether it is a long lease, I do not care whether it is a title deed, but everyone farming must have some kind of bankable title so that agriculture is financed by the banking sector. It is not sustainable that Government can finance agriculture. It is not possible. Let us put a full stop to the land question.

Let us find money for gross capital formation for electricity. We need about US$4 billion for electricity. We need about US$2 billion for our road network. Zimbabwe has got a road network of 88 000km and only 14% of that is paved. Without proper roads farmers, miners, manufacturers will not have proper access to markets. Let us pave our roads Madam Speaker.

“ Finally, Madam Speaker, let us find political solutions to the political crisis arresting this country. We are not talking to each other as political parties. There is predatoriness, there is fascism and as Zimbabweans we need to be talking to each other,” Biti said.

Full contribution:

MR. BITI: Thank you Madam Speaker. It is an honour and privilege to make a response to the Mid-Term Fiscal Policy Review Statement read by the esteemed Minister of Finance and Economic Development on the 11th September, 2014. It is self evident that the economy is in a deep structural crisis. The statement read by the Minister of Finance and Economic Development captures the essence of the structural crisis that this economy is in. Madam Speaker, you have to feel pity for the esteemed Minister of Finance and Economic Development. You have to feel great sympathy for the Minister of Finance and Economic Development [HON. MEMBERS: Inaudible interjections.]-

MR. MUDEREDZWA: On a Point order Madam Speaker.

THE DEPUTY SPEAKER: Order, order, what is the point of order.

MR. MUDEREDZWA: Madam Speaker, my point of order is, the hon. member is also reading [HON. MEMBERS: Inaudible interjections.]

THE DEPUTY SPEAKER: Order, order, hon. members in the House. I think you should be serious with business. When I am here on the Chair, I am seeing what is happening. Please refrain from telling me what to do. Hon. Biti, can you proceed with your debate?

MR. BITI: Thank you Madam Speaker. We have an economy that is clearly caught up in a structural recession. The economic definition of a recession is when an economy recedes for two successive quarters if you have an economy that grows in reverse for two successive quarters, then that is an economic recession.

The reality of our position is that, in 2009, our economy grew by 5.4%. In 2010, our economy grew by 10.4%. In 2011, our economy grew by 11.9%; almost close to 12%. In fact, in 2011 Madam Speaker, the Zimbabwean economy was actually the fastest growing economy in the world. In 2012, the economy grew by 10.7%. So from 2011 to 2012 we had a marginal decrease in growth rate, from 11.9% to 10.7%. In 2013, which is last year, depending on whom you were talking to, the economy would have receded to either 3.4% according to Minister Chinamasa¡’s 2014 budget or to 4.3%. You can see the beginning of the recession from 11.9% in 2011 to 3.4% or 4.3% depending on whom you are talking to.

This year now, the original growth rate was 6.1%, which is still a big decrease from 11.9%. As you know, the Minister revised the growth rate to 3.1%. That means the growth rate; from 2012 is now a revised growth rate from 10.7% to 3.1% in 2014. What it means is that you have had a fundamental downwards growth rate from 2012 to 2014 of 10.7% to 3.1%. I am illustrating the point that we are now in a recession.

When we are in a recession, the Minister of Finance and Economic Development must effect; must execute under a recession measures, the normal term for under a recession measures are under cyclical fiscal measures. The question is, did the esteemed Minister of Finance and Economic Development do justice to the structural problem by effecting and implementing under cyclical fiscal measures in his Budget Statement of the 11th September, 2014? Without that ¡V if you are driving from Harare to Bulawayo and your motor vehicle has a tyre puncture, you do not get out and then tyre puncture the remaining three tyres [HON. MEMBERS: Hear, hear.]-. You simply get out of your car; remove the tyre with a puncture, take the spare wheel and move on.

With great respect Madam Speaker, what the Minister of Finance and Economic Development did, first with his recession ¡V U-shaped recession, I will come to that. With the one puncture he had, he then went out and put a knife in the remaining three tyres so that the car cannot even move. I will explain this Madam Speaker. Firstly, when you look at other indicators of the recession, let us look at the level of inflation. The average figure for month on month inflation since January this year, has been a figure of 0, 2%. Deflation Madam Speaker, simply means that the prices of goods are reducing. In Zimbabwe where we have come from a situation of hyperinflation of 500 billion percent by 31st December 2008, Zimbabweans would normally celebrate disinflation because we were used to a period of abuse by high prices. Disinflation is dangerous because it is arising out of a situation of the absence of aggregate demand.

Prices in Zimbabwe are reducing because Zimbabweans simply do not have money to spend. If you go to any shop, shopkeepers are simply watching beautiful South African imported goods that are on the shelf, that are not moving because we do not have money to spend. So this disinflation is not coming out of genuine organic competition which the Reserve Bank Governor referred to in his Mid-Term Financial Statement as natural stabilisation coming out of completion, no. Disinflation is coming out of the simple fact that as Zimbabweans, we do not have money in our pockets and we do not have disposable income and so, we cannot spend.

The danger with disinflation; and every businessman here knows this, when there is disinflation, spurred by the fact that there is no aggregate demand, people are not spending, it means at the end of the day, that the gross income of business people is reduced. If you go to a gas station Madam Speaker, I implore you to do it when you leave this Parliament today. Go and check the last price of pumps and you will find that the last price is US$10 for 7 litres or US$5 for 2, 35 litres. So people are not spending money.

However, despite the fact that income is actually reducing, wages are downward resistant and so, if the wage bill of the businessman was let us say in a month, US$2000, his income is now US$500 but the wage bill will continue to be US$2000 because wages are downward resistant and it is impossible to go to a worker and say you were earning US$500 and you are now earning US$300. The worker will simply refuse and take you to the Ministry of Public Service, Labour and Social Welfare in terms of Part 12 of the Labour Relations Act. Companies will shut down because whilst the gross income is reducing because there is no aggregate demand and there is an elephant in the living room which is the wage bill which will not go down because the worker will refuse to have his salary reduced. As a result, wage arrears accumulate in a situation of disinflation and as a result, companies close. Which is why Madam Speaker, since January you have seen more than 800 companies close because of the downward resistance of the wage bill. So that is a sign of recession.

Another sign of recession is the current account. If you read Minister Chinamasa¡¦s budget, both the figure for imports and the figure for exports have actually reduced but the gap has maintained at a ratio of 4:1. That means Madam Speaker, for every dollar that is coming in as export income and hon. Hlongwane you know what I am talking about because you are a businessman ¡V [HON. MEMBERS; Hear, hear.] ¡V For every dollar that is coming in as export income, US$4 is going out as import expenditure but the gap is reduced. So whilst the amounts of both exports and imports have reduced, the gap has not been narrowed. It is still a ratio of 4:1, which again means that this economy is eating that which it has not produced. We are killing a rate by having the party of an elephant because the economy is not producing; again, another sign of a structural recession Madam Speaker.

The third issue is of course the issue of revenue and I will speak on the issue of revenue separately. I want to come to what you do when you are in a recession. Madam Speaker, if you do not control a recession, it becomes a depression. A depression is a sustained period of economic decline which can last for a period of 10 to 15 years. In the case of Zimbabwe, if you study the political economy of this country, the modern history, forgive me for disaggregating it from 1890 when the white men came into this country. This country has been prone to economic depressions that last for anything between 10 to 15 years and up to 25 years. Top economists, of which the Minister is not, will call then resource curse cycles [MS. CHIMENE: He is a lawyer.] he is a lawyer like me so I am not insulting. He is not a doctor but he is a lawyer like me.

If you recall Madam Speaker, that the last recession we had actually lasted from 1997 when we had a modest economic decline of -2.7% to 2008 when we had an economic decline of -14%. 1997- 2008, is actually 11 years and I am making this point to say that Minister Chinamasa and the Government of Zimbabwe should be worried about this current economic recession of Zimbabwe because Zimbabwe¡¦s economic recessions have got a tendency of being depressions that last for at least 11 to 15 years. There is an urgent need for doing something about the recession so that it does not graduate into an economic depression and that is the point that I am making.

Now, what is the standard kneejerk reaction for dealing with a country that is in an economic recession? Any informed Minister of Finance and any informed Governor of the Reserve Bank will tell you that the kneejerk reaction of getting out of an economic recession is to reduce interest rates. It is standard. When the global economy sunk into a recession on the fall of Leman Brothers on the 15th September, 2008, the standard reaction world over was to reduce interest rates. You reduce interest rates for two reasons Madam Speaker. You reduce interest rates because you want to make the cost of money cheap so businessmen will go and borrow and then you spend. Remember the primary cause of a recession is that people are not spending because there is no money. So you reduce interest rates so that people can go and borrow cheap money and put it in the industry and spend. You reduce interest rates so that those keeping money in banks can go and take it out so that they spend through buying motor vehicles and flat screen televisions. They spend. The whole idea Madam Speaker is that you want disposable income to be in people’s pockets and you want to spend.

Now, the tragedy is that if you look at the Mid Term Statement and if you look at Minister Chinamasa¡¦s budget, no one spoke of reducing our interest rates which are now averaging 25% to 35%. No one spoke about reducing interest rates and there was no under cyclical policy that was imposed. Secondly Mr. Speaker and here we cannot forgive the Minister of Finance. All the revenue measures that Minister Chinamasa carried out, the tax measures that he put are actually intended to take money out of our pockets. He puts duty on mobile phones, air time and basic food stuffs which are all effectively further pauperizing us. You cannot withdraw; you cannot source money to be taken out of your pockets.

In other words, Madam Speaker, if I was earning a dollar before the 11th September when Hon. Chinamasa read out his Mid Term Fiscal Policy Review Statement, the net effect of his tax measures are that effectively, the dollar that I had as at the 11th September 2014, is now 50 cents because the remainder of the other 50 cents has gone to tax measures. So, instead of putting money into our pockets so that we can spend and get the economy out of a recession, what Hon. Chinamasa effectively did was, out of that dollar to take another 50 cents, going into these heinous fascist taxes so that we are poorer than what we were before 11th September, 2014.

Effectively, Madam Speaker, instead of implementing under cyclical fiscal measures, Hon. Chinamasa of Makoni Central has in cact implemented pro-cyclical fiscal measures, which is why I cited an example of a tyre puncture whereby you come out and then punch the other remaining tyres. It is a tragedy Hon. Speaker.

THE DEPUTY SPEAKER: Order, order, what is happening behind there, I can see people hugging each other. I have told you earlier that I am able to see whatever is happening in this House. Let us behave ourselves.

MR. BITI: Thank you Madam Speaker. On the point that this Mid-Term Policy Statement Review is the epitome of feja-feja economics and I will illustrate this.

*MR. CHINOTIMBA: On a point of order! I have risen to make a point of order; may you please explain what is meant by the term feja-feja?

THE DEPUTY SPEAKER: I think the hon. member had said he is going to explain it. Anyway, can you explain for the benefit of hon. members.

MR. BITI: Thank you for protecting me. If you look at page 80, 81, and 82 which is probably the most important section of the budget, it talks about the macro-economic framework. Now, Hon. Chinamasa in his statement, confesses rightly so – that the revenue to Government has been decreasing so much so that the original projection of the 2014 budget, targeted revenue collection of US$4. 1 billion; in the macro-economic framework, Minister Chinamasa accepts that he is not going to collect US$4,.1 billion but will collect US$3.8 billion. Now, the difference between US$4. 1 and US$3.8 is 6, 55% or 7% when rounded off. So, the budget is being reduced by 7% from US$4.1 billion to US$3.8 billion which is a reduction of 7% or if you want to be accurate, 6.55%.

However, in the next paragraph, Minister Chinamasa actually says, he needs US$950 million. He is asking for this Parliament to make a virement, a supplementary budget of US$950 million. But the US$950 million is not being added on US$3.8 billion; it is being added to the original budget outline of US$4. 1 billion. Hence, he is confessing that his revenues will be $3.8 billion but instead of asking this House to reduce, the budget downward to 3,8 billion, which is a reduction of 7%, the Minister is asking us to increase expenditure of US$950 million which is almost a billion dollars on the original US$4.1 billion.

The net effect of the total expenditure is US$5.1 billion which is an additional 32% and you add it to the 7% deficit, it will become 37%. Now, the feja-feja component comes into play in the sense that you are confessing that your budget will be down by 7% but you are asking on the same revenue, for an additional increase of 37%. You can only do that Madam Speaker, when you think that money grows on trees, a disease which I called when I was still the Minister of Finance and Economic Development, fiscalities – the assumption that you can eat what you can not kill. This cannot be good economics; this cannot be sound economics. The essence of sound economics which an ordinary mother in Chiendambuya, Tsholostho, Nkayi or Dotito will know that if you are going to produce US$2, you can only spent US$2. If you are going to produce US$2, you cannot spend US$20, it is simple economics. You do not have to listen to Paul Volcker or Allan Greenspan; 2 + 2 will always be equals 2, it cannot be equal to 20. This is where I have a fundamental problem with the esteemed Minister of Finance and Economic Development.

The fourth thing I want to talk about is the expenditure mixture of the budget. The esteemed Minister of Finance and Economic Development said that 76% of the budget is going to the wage bill. In fact, if you do your calculations correctly, Madam Speaker, it is actually 79% of the budget that is going to the wage bill. It is not Hon. Chinamasa’s fault that 79% of our income is going to the wage bill. He is simply fulfilling an election promise that was in the ZANU PF Manifesto. So, we cannot blame him there. The danger however, is that

THE DEPUTY SPEAKER: Order hon. member, can I remind you that you are left with only two minutes. Can you please wind up?

MR. BITI: I will just wind up. Madam Speaker, I will just go to solutions. Since September 2013, Minister Chinamasa has been financing the budget deficit, which if this House were fortuitously not to pass the additional revenue measures, the budget deficit would at least be standing at 12% of GDP. The danger

THE DEPUTY SPEAKER: Order Hon. Member. There is a white Ford Ranger No ADI 9278 which is blocking other vehicles. Hon. Members, could you please respect other drivers when parking because we cannot continue to make the same announcement in this House. We have a lot to discuss.

MR. BITI: Madam Speaker, I want to come to solutions. This is our country and there is no point in embarking on point scoring. Let us find solutions to the problems facing our country. I want to appeal to Minister Chinamasa and tell him that deficit economics – the economics based on budget deficit does not work. What we are doing is: we are imposing current indebtedness to future generations. Since August, 2014 to date, the current Government has been financing the budget deficit through borrowing and overprinting of treasury bills. Treasury bills are dangerous in that, effectively what we are doing is printing the US$. We do not have the printing press, we are not printing the Z$ but once you begin to issue treasury bills as you have been doing, you are effectively printing the US$, which you cannot do. It is dangerous deficit economics, which does not work but you are merely passing the burden of that responsibility to the future generations.

If you look at the tenure of the treasury bills that have been issued by Government, they all have 4 years tenure. Effectively, what Minister Chinamasa is simply saying is that after 4 years, I will not be the Minister of Finance and Economic Development so, it will be a problem for the next Minister of Finance. That is not sustainable economics.

MR. GONESE: Thank you Madam Speaker, I move that the hon. Member’s time be extended.