- At the centre of the above challenges, is the unsustainable high budget defidt. This challenge has had destabilising implications not only to the financial sector but to the rest of the economy.
- The financing of the deficit was mainly through domestic borrowing with the use of instruments such as Treasury bills, overdraft with the Central Bank, cash advances from Central Bank, arrears and loans from the private sector.
- Such financing mechanisms is crowding out the private sector, hence constraining production. This also increased money supply in the economy translating into exchange rate misalignment and inflationary pressures now at 4.9%, as at August 2018.
- Similarly, the high deficit has ignited expansion of domestic debt from US$275.8 million in 2012 to current levels of US$9.5 billion against US$7.4 billion external debt. This brings total public debt to US$16.9 billion.
Way Forward
- In the context of the above developments, macro-economic and fiscal stabilisation becomes critical and urgent and should invariably target the fiscal deficit. A stable macro-economic environment is an essential precondition for growth and improvement of living standards for our people.
- It allows individuals, businesses and the Government to plan more effectively for the future. In addition, it increases investment and helps to raise productivity.
Fiscal Measures
- In his State of the Nation Address during the opening of the Seventh Parliament, the President emphasised the need to restore fiscal equilibrium. Therefore, in order to complement and support the Monetary Policy measures that have been announced by the Governor of the Reserve Bank of Zimbabwe, I hereby announce a number of fiscal measures and fiscal roadmap.
- These measures are also necessary for effective fiscal and monetary coordination in order to restore macroeconomic stability.
- The Budget deficit has increased over the years to unsustainable levels. Various measures need to be taken in order to reduce it, so that it seizes to be an albatross on the growth of the economy.
Financing of the Deficit Overdraft. facility at RBZ
- The overdraft with the Central bank stands at US$2.3 billion, as at end of August 2018, well above the statutory limit of US$762.8 million.
- Consequently, Government will effectively limit the use of the RBZ overdraft facility and curtail RBZ advances to Government in line with Section 11(1) of the Reserve Bank Act [Chapter 22:15], which states that borrowing from the Reserve Bank shall not exceed 20% of the previous year’s Government revenues at any given point.
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