Implications of the 2023 audit report

By Zvikomborero Sibanda | Aug. 16, 2024

Public debts make Zimbabwe susceptible and unable to respond quickly to adverse shocks such as natural disasters. File pic

SECTION 309(2) of the Constitution of Zimbabwe, as read together with Section 10(1) of the Audit Office Act [Chapter 22:18], provides for the examination of public accounts.

Also, Sections 35(6) and (7) of the Public Finance Management Act direct the Auditor-General (AG) to prepare and submit to the Treasury a report on the examination and audit of Zimbabwe's public accounts by no later than June 30 each year.

In strict adherence to these provisions, the AG, through the Office of the Auditor-General (OAG), has diligently prepared and shared the 2023 audit report on appropriation accounts.

The latest report has uncovered numerous irregularities in the distribution and utilisation of funds by line ministries.

Against this backdrop, this column seeks to briefly analyse the extent to which these audit findings can hinder the achievement of social and macroeconomic objectives, which are deemed critical for achieving an inclusive upper-middle-income economy.

Sustainable government finances

Generally, fiscal discipline is essential for sustainable government finances, as it helps reduce vulnerabilities, sustain economic performance, and maintain macroeconomic stability.

Yet, the 2023 audit report on appropriation accounts indicates that many ministries are not fiscally disciplined. For instance, they are accumulating payment arrears unsustainably, with the AG establishing that arrears payments constituted at least 50% of the 2023 national budget.

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A lack of enforcement of procurement legislation and weak internal controls explains these out-of-control expenditures by various ministries.

Consequently, inadequate fiscal discipline and weak fiscal management drive fiscal deficits and public debt exponentially. The latest 2024 Mid-term Budget and Economic Review shows that Treasury spent ZiG38,9 billion (US$2,8 billion) in the first six monthsof 2024, resulting in a huge overall budget deficit of 5,9% (ZiG2,3 billion, equivalent to around US$175 million).

This explains the jump in public debt, particularly domestic debt, which increased from 38,4% (US$8,1 billion) of the total debt estimated in Dec 2023 to 41.3% (US$8,7 billion) in June 2024. Total public debt is unsustainable, constituting 96,7% of nationaloutput (GDP).

This depicts a worrisome trend as unsustainable fiscal deficits and public debt make Zimbabwe susceptible and unable to respond quickly to adverse shocks, such as currency fluctuations, natural disasters, financial market volatility, and terms-of-trade shocks.

These shocks directly impact budgets (limited fiscal space), destabilise local currency, and fuel chronic inflationary pressures.

Improved public services

The primary role of government is to provide essential public services like education, housing, healthcare, and disaster response. To fulfill this role, the government has the power to levy taxes and even borrow internally or abroad to provide these essential services.

Taxpayers expect quality, accessible, and affordable public services from their government. However, the 2023 audit report on appropriation accounts highlights that gross inefficiencies in ministries constrain public servicedelivery, pushing many citizens into abject poverty.

For instance, the audit report showed that many ministries pay forgoods and services that never get delivered despite making huge advance payments to suppliers.

In other cases, procurement processes lack due diligence, reducing the VFM for citizens as the government is often highly overcharged.

Also, there is slow adoption of technology as many ministries are still predominantly following manual procedures, making public funds prone to corruption, abuse, and misuse.

Economic well-being

Generally, economic well-being is about creating a conducive environment where individuals and communities have the resources and opportunities to fulfill their potential and lead fulfilling lives.

This concept extends beyond just income or wealth to include factors such as employment opportunities, work-life balance, access to education and healthcare, and the ability to participate in society. In essence, it is a vision of an economy that not only grows but also improves the quality of life for all its participants.

Yet, the 2023 audit report indicates that some ministries marginalise vulnerable groups and communities.

For instance, the Disabled Persons Fund, which was created to promote the welfare of disabled persons by providing financial resources for rehabilitation, training, and engaging in income and employment-generating projects, is grossly abused.

Again, the audit report shows that some ministries fail to spend resources earmarked for vulnerable groups' well-being and social protection simply due to a lack of mechanisms to identify beneficiaries.

Also, the AG reported that it takes a long time for ministries to clear outstanding obligations under the Basic Education Assistance Module (BEAM) scheme, disrupting learning for children from underprivileged households.

The preceding occurs when 22% of school-going-age children are reportedly not in school, with 10,3% facing financial challenges.

If uncorrected, these unfortunate episodes will continue to widen societal inequalities and trap vulnerable groups in a vicious cycle of poverty.As such, government ministries must always strive to advance the economic well-being of marginalised groups.

Equitable distribution of wealth

The 2023 audit report on appropriation accounts shows that ministries are not contributing to equitable income distribution.

For instance, senior management of some ministries were awarding themselves huge perks while evading tax. Also, government officials use public assets for their benefit, and in some cases, motor vehicles procured using public funds are registered in the names of individuals.

In addition, weak debt recovery strategies in many ministries and ongoing violations of procurement laws and regulations only benefit the rich and politically connected.

Thus widening the net of the have-nots, a situation that significantly contributes to high crime rates, early child marriages, and drug abuse by many unemployed young people.

Low inflation

One of governments' key macroeconomic objectives is to attain low inflation, the primary function of a nation’s central bank.

Low inflation immensely contributes to economic stability, encourages savings, investment, and economic growth, and helps maintain international competitiveness. However, in 2023, Zimbabwe experienced increased price volatility driven by the incessant instability of the then-Zimbabwe dollar (ZWL).

A granular analysis of audit findings for the 2023 appropriation accounts shows that price instability likely emanated from increased ministry spending.

The AG reported that the total budget allocation for fiscal year 2023 was ZW$12 trillion (US$6,9 billion), against the initially approved budget of about ZW$2,7 trillion.

For the previous fiscal year, 2022, unauthorised excess expenditures totaled ZW$534 billion.

In all these episodes, the AG did not find evidence that the Treasury sought prior approval from Parliament, thus contravening Section 307 of the Constitution.

Improved productivity

The poor working conditions in many ministries likely contribute to high labor turnover and low labor productivity.

The 2023 audit report on appropriation accounts established that many ministries' processes and procedures are still manually conducted.

Also, the welfare of government workers across various ministries and agencies is likely compromised as some staff houses are reportedly deplorable, and they are working in buildings with cracks and lacking proper roofs, doors, and windows.

All this poses a greater risk to human life, government assets, and public records, thus negatively impacting service delivery and attainment of Vision 2030. Inclusive economic growth Vision 2030 is anchored on sustainable and inclusive economic growth.

Inclusive economic growth is a concept that advances equitable opportunities for economic participants during economic growth with benefits incurred by every section of society.

This can be achieved through gender mainstreaming, that is, integrating a gender equality perspective at all stages and levels of government policies, programmes, and projects.

Women and young girls continue to face a heavily unequal world characterised by a lack of leadership positions, gender-based violence (GBV), imbalance in unpaid care work, legal barriers, poorsanitation, inadequate funding, workplace discrimination and inequalities, social norms, and cultural practices.

While the government has made strides in empowering women andother disadvantaged groups, gender mainstreaming of policies remains lacking.

The 2023 appropriation accounts audit report established that many ministries lack a gender mainstreaming strategy. For instance, the Ministry of Industry had no gender policy document, gender activities plan, clear gender structure, or director for gender activities.

If unremedied, this will continue to militate against women's empowerment, leading to GDP growth that leaves more than half of the population behind.

Sibanda is an economist and research associate with Zimcodd. He is a staunch advocate for inclusive and sustainable development. He writes in his personal capacity.