Deconstructing 2010 National Budget

Budget Statements

2010 National Budget pg 1-72
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2010 National Budget pg 73-106
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2010 National Budget pg 107-142
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2010 National Budget pg 143-167
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2010 National Budget pg 168-172
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Building a sustainable economy for the future”, this means a lot of capital expenditure in things like technology, infrastructure etc. This budget does very little in that regard. Too little in my view! 

Deconstructing the budget presented by Finance Minister, Hon. Tendai Biti, yesterday, it is easy to celebrate the revised growth forecast figure of 4.7%, reduction in inflation by 500 Billion percent(Source: Bloomberg) or the improved revenue figures. You could even latch on the promise by Biti to rein in the exorbitant governmental travel bill of US$28million in only ten months. Hon. Biti believes this budget will foster economic growth. More importantly, the head of the treasury says the government will only spend what it has in its purse without any borrowing. The figure that jumped out, however, was the proposed 5% capital spending.

The issue of capital expenditure versus revenue expenditure is very important in macro economics. Revenue/Current expenditure only deals with everyday expenditure of things that are immediately consumed like salaries, travel expenses as well as consumables like drugs for the healthcare industry etc.

In other words, revenue expenditure has a finite life. Put simply, capital expenditure is spending on assets. It refers specifically to spending on things like building roads and new hospitals, laying broadband and electricity lines etc; things that will be used time and time again to generate economic value. Striking the right balance between current and capital expenditure is crucial for the success of any economy.

Of course, current expenditure has its positive effects on the economy as well. Like any spending that goes on in the economy, it turns into output via the ‘multiplier effect’ as economists call it. That is just a fancy way of saying money spend continues to circulate around the economy creating positive ripple effects.

If the government pays a Teacher and the teacher pays rent to his landlord who in-turn goes to pay school fees for his son and then the school uses the money to buy beans to feed the children and so on and so forth. In fact, once the government has provided the sufficient capital spending, over time current expenditure becomes the major share of all government spending.

When a government spends money on capital projects like building schools for example, several generations of Zimbabweans stand to benefit over a long period into the future. St Joseph’s (Mutare), for example, was founded in 1914 and Luveve Secondary 5 years later, initially as a multi-racial technical college then turned into a black secondary school. The economic value that continues to be derived from these institutions through generations of graduates cannot be overstated.

Even more important is the fact that Zimbabwe really needs the investment in capital expenditure. The roads in Zimbabwe have become death traps because of potholes and dilapidation, ZESA has countless problems resulting from lack of investment in equipment, schools and higher education institutions desperately need restoration and hospitals lack vital equipment to deliver basic services. In light of all this, rebuilding Zimbabwe is going to require a lot more investment in capital than the five percent proposed in the 2009 budget.

Let us take Harare alone just for a moment. The sewerage system is so damaged; human excrement is flowing on the streets of Mabvuku, Mufakose and many other suburbs. The water purifying system is not any better. I am told by those living there that you cannot drink tap water anymore without putting any purifying tablets.

These two problems have resulted in the cholera outbreak that continues to rage the capital city. And then there are the power problems! Transformers keep blowing up and the power stations don’t seem to be able to handle the load necessary to power the city. All the major public hospitals in the city need more than just a makeover.

The buildings are falling apart, they are terribly under-equipped and new and specialist healthcare centres are long overdue. Were it not for the expensive private hospitals, the country would have succumbed to the pressure a long time ago. Take this Harare situation and replicate it across the country. The need for real and significant capital investment by the Zimbabwe government is not in question.

Without the roads, the hospitals, clean water, adequate power and no sewerage running on the streets, it is hard to see how the country could truly reach the economic prosperity that we seek. Vital steps have been taken and difficult decisions have been made, but we still have a mammoth task ahead. We have stabilised the economy and stopped the roll down the hill, but the climb back to the peak will be hard and treacherous.

Granted, Mr Biti’s job has not been made any easier by the lack of resources to achieve this goal. The government coffers are not helped by the 60-70% unemployment, another 25% or so in the informal economy, that do not bear the tax burden and companies not operating at full capacity. The country needs fiscal support through aid and loans until it gets on its feet. The finance minister has made it clear he does not believe in borrowing his way out of trouble.

That leaves only support from international institutions like the UNDP and IMF as well foreign governments. All these are quite tentative about forwarding any support to the fragile transitional government currently in place. The only solution is to request for target specific aid specifically aimed at capital projects like reconstruction of the water and sewerage systems in Zimbabwe for example. Biti has a duty to figure out a way to pay for these developments.

When all is said and done, the role of government is to make those necessary capital investments either directly or in partnership with the private sector, aid organisations and allied governments to enable the economy to generate output. The country will not succeed without it.