2.6 Fiscal Sustainability and Financial Stability
Fiscal sustainability and financial sector stability are like Siamese twins and for Zimbabwe, long term financial stability is, premised on fiscal sustainability. Medium and long-term development and deepening of financial markets, the development of new instruments and new financing capacity, the diversification of financial products and services – all this is conditional on fiscal sustainability.
This requires immediate Government attention and comprehensive review. The current levels of the fiscal deficit and the mode of financing, against diminished fiscal revenue sources, is measurably unsustainable. In addition, the expenditure composition, at over 95% recurrent expenditure, this has also underpinned high consumption levels, with correspondingly high imports of consumption goods, depleting both scarce foreign currency and local production capacity.
This scenario invariably leads to an unsustainable domestic debt build up, with significant adverse implications on the banking sector stability, where a large segment of balance sheet assets of banks is in terms of Treasury bills, whose value recedes with debt build up. In addition, this not only crowds out productive sector financing, but raises the premium costs for Zimbabwe in accessing regional and international lines of credit, leading to elevated and higher domestic financing costs, at a time when Government is actively working towards reduction in the overall costs of financing.
2.7 Sustaining Investment in Infrastructure
Government has implemented a number of defining infrastructure projects, as highlighted already. Going forward, it is important that Government sustain such infrastructure investment, expanding to include:
i. National Railways of Zimbabwe
ii. Irrigation Infrastructure Development
iii. Roads and Highways rehabilitation
iv. Water and sanitation; and
v. Expansion in Energy and Power projects
Continued next page
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