Govt’s RBZ overdraft position worsens

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THE central bank’s lending to government through the overdraft facility increased by $1,1 billion during the period January to August this year due to the persistence of Zimbabwe’s unsustainable high budget deficit, Finance minister Mthuli Ncube has revealed.
This is despite assertions by the central bank earlier this year that it had put in place measures to restrict the facility to statutory limits after it overshot by $400 million in 2017, at a level of $1,2 billion.
“The fiscal deficit is expected to worsen the overdraft position at the central bank, which by 31 August was $2,3 billion, which is 59,4 percent of the previous year’s revenue against 20 percent of the previous year’s revenues, as stipulated in the Reserve Bank Act,” Ncube said in his pre-budget strategy paper released recently.
The minister said the situation was brought about by failure to live within means as the persistent budget deficit has been financed primarily through Treasury Bills and the overdraft facility.
He said revenue collections for the first half of the year amounted to $2,51 billion, while total expenditures during the same period stood at $3,72 billion. The cumulative budget deficit for the period stood at $1,21 billion, against a cumulative target to June of $388,7 million.
The minister said the huge deficit for the period to June was a result of “mainly unbudgeted expenditures” relating to expenditures on the wage bill, support for the agriculture input support schemes, as well as capital expenditure on roads.
Ncube revealed that lending to government by the central bank through the overdraft window increased by $478,2 million for the period January to June 2018, adding that “the runaway central bank lending to government is projected to reach $2,5 billion by year end, which is 64,6 percent of the previous year’s revenues”.
According to the Reserve Bank Act, the bank’s lending to government should not exceed 20 percent of the previous year’s revenue.
In the pre-budget paper, the minister proposes that measures be put in place to curb the lack of restraint.
“Notwithstanding the need for compliance with the stipulated threshold in 2014 and 2015, Reserve Bank lending thresholds to government were surpassed in 2016 to reach 27 percent.
“In the absence of sustained fiscal discipline and strong expenditure containment policy measures, the pointers are of a worsening position over the period 2018-2020,” Ncube said.
In addition, the minister proposes penalties for non-compliance with the Public Finance Management Act’s provisions, and reiterates commitment to fiscal anchors such as the Budget Balance and the Debt to GDP ratio.