In regard to fiscal stability I think the budget plays the most critical role. Between 2009 and 2013, government ran a cash budget and balanced its books. By the end of 2013, the budget deficit only crept to USD 50 million. Between 2013 and 2016 the budget deficit rose to USD1.2 billion. Fiscal prudence was thrown out of the window and government recurrent expenditure rose dramatically. Yet revenue performance declined over this period from USD4billion per annum to USD 3.6 billion by end of 2016. Expenditure ballooned from USD 3.8 to USD 4.8 billion. The takeover of the RBZ debt and other parastatal debts compounded the fiscal position. The unexplained increase in employment costs did not help the situation. Clearly, without fiscal balance there is no macroeconomic balance. The fiscal deficit has sparked a deep fiscal crisis in Zimbabwe. This fiscal crisis has had contagion effects on the monetary sector and the external sector.
I now come to the external sector. The external sector is comprised of the current account and the capital account. The current account has always been in the red since the Rhodesian days and the government of Zimbabwe has failed to break this vicious cycle. In relation to trade, Zimbabwe imports goods and services worth USD 6 billion every year but only exports goods and services worth USD 2.9 billion. This leaves a trade deficit of nearly $3billion per annum. The situation has slightly improved by default since the introduction of bond notes and the drop in Nostro account balances.
I say by default because export levels are still depressed. Linked to the external sector is the question of the debt crisis and its resolution. In 2015, the government of Zimbabwe arrived at an agreement with our main creditors to service debt arrears then to the tune of $1.8 billion. The arrears were jointly and severally owed to the World Bank ($1.2 billion), IMF (150 million) and IBRD ($600 million). To date government has cleared IMF arrears using its SDRs. The remaining balance is yet to be paid. At present, Treasury does not have the capacity to raise funds to repay. The other leg of the external balance is the capital account which is populated by foreign direct investments, portfolio investments, Diaspora remittances, and NGO and embassy funds. The capital account is sensitive to the political environment and policy inconsistencies. In terms of inflows, the capital account receives about $2billion annually.
Having analyzed the uneasy triangle of fiscal, monetary and external sectors and how important it is, I now wish to say that for macro-economic stability to be achieved, the three sectors have to register favorable balances. In other words, the balances have to be in the ball park. The range of the ball park is debatable but for the fiscal deficit it must be 5% of GDP and the deficit must be a productive deficit not a recurrent one. But to achieve macro-economic balance, the economy has to produce and grow. The uneasy triangle will not improve unless there is production and growth in the real sectors of the economy. At present, the Zimbabwean economy is anchored by tobacco which rakes in about $800 million dollars per annum; gold which rakes in about $650 million per annum; platinum ($700 million); diaspora remittances ($1billion) and NGO/embassy funds ($600 million per annum). Unfortunately the diamond sector is the missing link here.
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