BSR: Our System of Government – Public Finance


We are getting towards the end of the year and soon, the Minister of Finance will be presenting the national budget statement. Although it may be unfamiliar to most, presenting the national budget is a constitutional requirement in terms of section 305. The Constitution does not use the word “budget” but rather calls it “a statement of the estimated revenues and expenditures of the Government in the next financial year”.

The national budget statement will show, among other things, the amount of money that the government hopes to earn and how much it plans to spend over the course of the next year. While the national budget may appear like an esoteric subject to most people, what with all the technical jargon and numbers, the concept is no different from the budget that people prepare for their households; you know how much you are likely to earn and allocate it towards expenses such as rent, school fees, food, fuel, utility bills, medical insurance, and if you can afford it, entertainment, and so on.

In fact, basic economics begins at the household level; you are engaged in an exercise of allocating scarce resources to meet unlimited demands. You learn to prioritise. Therefore, you may have to forego entertainment if utility bills or school fees have gone up.

Unfortunately, those who lead our government do not always exercise similar prudence. When resources are scarce, they might cut spending on public health-care while allocating more funds to pay for the president’s luxury jet. This is probably because they have no incentive to be prudent with public funds.

Among the people, there is a common, but misguided belief that public funds belong to the government. Hence it is often referred to as “mari yehurumende/imali ka hulumende”.  When the government provides agricultural inputs to farmers or food-aid in times of drought, they think it’s the government being generous with its money. When orphans and vulnerable children get their school fees paid through the Basic Education Assistance Module (BEAM), this is coming from taxpayers and donors.

This #BSR is part of the “Our System of Government” series whose object is to enhance public knowledge and awareness on how the country is governed. In this series, we have covered the electoral system, the division of responsibilities between Members of Parliament and Councillors, and the role of the unelected in government. I firmly believe that a people that is more informed about how it’s governed is likely to be more politically conscious and to make more better decisions.

In line with this object of promoting political literacy, this #BSR provides a simplified explanation of the financial affairs of government. In this part, I am going to place greater emphasis on the sources of government finances. The following questions will be answered: Where does the government get its money from and how does it spend it? What are the legal rules governing the use of public funds?

Tax History records Benjamin Franklin as having written, “In this world, nothing can be said to be certain, except death and taxes”. What has become a cliché is a fatalistic reference to the inevitability of taxes (mutero/umthelo). One of the ultimate manifestations of government power is its ability to levy taxes on people and organisations operating within its jurisdiction. Unfair taxes have been the cause of protests and civil disobedience throughout the course of the history of nations. Taxes in the early phase of the colonial regime were so unpopular that they formed part of the reasons for the First Chimurenga/Umvukela in 1896. taxes have often been a point of attrition between rulers and citizens.

There are different forms of taxes, the most common of which is Income Tax. Most workers are familiar with this type of tax because it is a tax on their wages. The government takes a certain percentage out of every dollar that a worker earns beyond a certain threshold. However, this type of tax predominantly affects workers in the formal sector. The tax is deducted on a monthly basis via a system known as PAYE (Pay as you earn). This makes it easy for the government to collect income tax. It used to be a big source of income for government but it has declined with the fall in unemployment. With more than 90% unemployment rate, only a small fraction of the population is paying this type of tax. Not more than 10% of government revenue is estimated from individuals in 2020 according to the government’s pre-budget strategy paper.

The second type of tax is corporate tax. This is a tax on the income earned by companies. A company such as Econet Wireless or Delta Beverages has to pay tax on its income. All over the world companies try as much as possible to reduce their tax burden and many multinational corporations have been accused of arranging their structures and processes to avoid paying corporate taxes. Others argue that high taxes for corporations are counter-productive. However, that’s a big debate for another time. At present, with the country experiencing a serious economic crisis, many companies have either closed down or left for new pastures. there is no serious foreign direct investment. Save for a few companies, many are struggling to make ends meet, let alone pay decent taxes. This source of revenue has declined and the government expects less than 9% of its revenue to come from corporate tax in 2020.

The biggest source of revenue in 2020 is estimated to be Value Added Tax (commonly known as VAT). This is a consumption tax levied on goods and services bought and sold on the market. Each time you buy food or clothes on the formal market, VAT is charged on it. The price of services also includes VAT. We used to have sales tax many years ago before it was replaced by VAT. The informalisation of the retail market reduces the amount of tax that could be earned in this stream. Since everyone buys something, all people qualify as a taxpayer. This debunks the myth that just because you don’t have a formal job and you don’t pay income tax therefore you are not a taxpayer. VAT means everyone is a taxpayer. Stamp duty that is paid upon buying a property is another consumption tax as is Capital Gains Tax.

One of the most controversial taxes in recent years, the two per cent electronic money transfer tax is yet another consumption tax which everyone pays whether or not they are formally employed. First introduced illegally by Finance Minister Prof Mthuli Ncube in October 2018, this tax is paid whenever a person pays for goods or services or transfer money using an electronic money transfer system. It has become a major cash cow for the government.

Some taxes are based on the usage of a product or service. These are called “user taxes”. You pay the tax on the service or product that you are using. A good example is the toll-gate fee on the roads. It’s paid by motorists because their vehicles use a road that has a toll-gate. You can choose not to pay a toll-gate fee by using public transport. Nevertheless, since operators tend to charge their fees taking into account the toll-gate fees, it can be argued that members of the public indirectly pay this tax.

Licence fees are also a form of user taxes. There are certain services that can only be provided with the consent or certification of government and usually, a fee must be paid upfront or periodically. This is why a businessman who wants to open a bottle store has to pay a liquor licence. A commuter bus operator has to pay a fee for the licence to operate. The listener’s licence paid to the ZBC also falls into this category as is the vehicle registration tax. One of the biggest taxes of this type is the operating licence fee paid by mobile network operators (MNOs) such as Econet. They pay millions to the regulator POTRAZ in licence fees for the right to operate their businesses. Organisations like the Wildlife and National Parks authority earn fees from licencing tour operators and trophy hunters.

Another type of tax is the customs duty. These are taxes are paid on the value of imported goods at ports of entry. A percentage of the price of diesel and petrol is duty paid to ZIMRA, the tax authority. Anyone who has imported a vehicle into the country knows they must set aside a budget for the import duty, which is quite steep and prohibitive particularly because government demands payment in foreign currency. The irony is that political actors who should lead by example are actually exempted from these taxes. This is how a ZANU PF MP was able to avoid paying duty on a supercar. However, he is not the only one. The net result is that those who import the most expensive vehicles and have the means do not pay taxes while those who have the least resources are required to pay taxes.

Import duties are familiar to the multitude of cross-border traders who buy goods from neighbouring countries for resale in Zimbabwe. These days, the government demands duty on certain imports to be paid in foreign currency. This is a burden on cross-border traders struggling to eke out a living. At ports of entry, such as airports, you will find tax officers from ZIMRA watching carefully and searching passengers’ bags to make sure they charge import duty on goods that have been brought in. Some of these officers abuse this power to collect rents in the form of bribes from travellers who want to avoid paying high taxes on their goods.

Additional taxes are also paid on goods such as beer and cigarettes informally referred to as the sin tax. This tax is called excise duty. One of the policy reasons for such a tax is that these products may be harmful to health. The tax not only makes these goods more expensive, hence may deter or reduce the consumption of the goods. The funds raised from taxes on these products may also be allocated towards meeting the costs of health-care.

National insurance is another type of tax which is paid by all workers in the country. These are the contributions to the National Social Security Authority (NSSA). When this scheme was introduced, it was challenged in court but the Supreme Court ruled that while it was indeed a tax, it was reasonable in a democratic society.  This compulsory tax is meant to provide a public pension scheme upon retirement. This does not stop those who can afford to subscribe to a private pension scheme – which, to use similar vocabulary, is a voluntary private tax.

Therefore, NSSA is a quintessentially public organisation in the proper sense that it is owned by workers and pensioners without whose contributions it would not exist. Unfortunately, NSSA is also one of the most abused and most looted organisations in the history of post-independent Zimbabwe. Since it is a cash-cow, elites have taken advantage of its vast cash resources often to the detriment of workers. The Auditor-General’s report revealed egregious corruption and looting of NSSA funds yet save for action against former Minister Prisca Mupfumira, nothing has been done. Those who have looted have effectively stolen from the workers and pensioners.

Selling Public Assets

The government may also raise revenue from the sale of public assets. Such assets may include shares in private companies and state-owned companies which are sold to private operators. A state-owned company is privatised when it’s sold to private operators and is no longer controlled by the state. The government then exercises regulatory power over the private entities and gets revenue through licence fees. For example, having failed to run the National Railways of Zimbabwe, the government might sell it so that it’s privately operated. In return, the government exercises regulatory control over the provision of rail services and receives an annual fee from the private operators.

However, most public companies are actually a drain on public funds. Instead of contributing to government revenues, they regularly receive cash injections from public funds. Most of them are technically insolvent. In other words, they are literally broke and only survive because the government uses public funds to carry them. In 2018, the government had to fund public enterprises by literally printing money through the issuing of Treasury Bills. we have already observed how such Treasury Bills contribute to the overall national debt.

The government may also raise funds from the sale or lease of state land. In addition, royalties and rental fees paid by mining companies operating in the country. Unfortunately, there are too many leakages in the system, as revealed by the Auditor General in her report. She showed that ZIMRA has severe weaknesses which mean it has no clear idea of how much of the minerals are actually exported from the country. Understatement of exports is prejudicing the country.


Fines imposed by public authorities on offenders are also a source of revenue for the government. Many will recall painful memories of how the Zimbabwe Republic Police literally set up shop on many roads where road-blocks were mounted to extract as many fines as possible from motorists. The ZRP had a great incentive to do so because the government allowed it to retain a large portion of the fines. They ended up abusing their power, causing a huge nuisance and inconvenience to the travelling public.


The balance between a country’s imports and exports is critical to its economic well-being. It obviously makes economic sense to export more than you import. These exports bring much-needed foreign currency. Mining is currently Zimbabwe’s main source of foreign currency with gold and platinum being high earners. We could have done well with diamonds after the discoveries a little over a decade ago but unfortunately, they were subjected to egregious looting by political and military elites. When businesses export, they do not get all their profits in foreign currency. They are allowed to retain some of it but the rest remains with the government. They then get the equivalent in local currency at the official exchange rates.

Tobacco farmers and gold miners are affected by these rules, a circumstance which sees some trying to circumvent the official system since the retention rates mean they end up getting less than they deserve. The unfairness becomes clear when one considers that the foreign currency that is retained by the government is then allocated at cheap rates to political and business elites on the grounds that they are importers of strategic goods like fuel and grain. What it effectively means is that tobacco farmers and gold miners are being taxed and financing business elites in so-called strategic industries.


The government also borrows money to finance its activities. This includes loans from both domestic and foreign sources. When he presented the budget last year, the Finance Minister announced that our total debt was US$17.69 billion, with US$7.7 billion being foreign debt and US$9.6 billion is domestic debt. Loans have to be paid back plus interest, which constitutes profit for the lender. Whether or not the government gets a loan depends on its credit-worthiness. In doing so, lenders consider the government’s credit history.

Unfortunately, our government has arrears of up to US$5.9 billion dating back to 1999, when it first defaulted on loans it was supposed to pay back to lenders like the IMF, World Bank and the AfDB. There are also other creditors in Europe, which include commercial banks. They are known collectively as the Paris Club and we owe them the bulk of the foreign debt. These lenders are currently not willing to give us loans because we already owe them lots of money which we have failed to pay for many years. One way to open doors to future lending is to start paying back. However, we do not have the money. We are in a serious debt trap.

We are already struggling to meet the basics in our country. In fact, we owe debts to our neighbours, South Africa and Mozambique among them, for some of those basics like electricity. Therefore, we have to plead with our creditors hoping to somehow find a settlement or better still, get some debt forgiveness. If we are forgiven it means we will be excused from paying back. Some of our neighbours like Zambia were fortunate to get forgiveness more than a decade ago. Unfortunately, they learnt nothing and forgot nothing: they are facing a serious debt crisis again.

What has happened to countries like our neighbour is causing creditors and policy-makers to doubt whether debt forgiveness really works. Some argue that it only encourages bad behaviour and imprudence. We have an additional problem in that we have a bad political reputation at the moment. Creditors are reluctant to be associated with a government that does bad things to its own people. They fear their money will be used to buy weapons and instruments to suppress the people. They don’t want to be seen to be condoning a government that harasses and mistreats its citizens. This is why some insist on the importance of political reforms. Our government has to change its ways and prove that it can be trusted with public money.

There is nothing wrong with borrowing if the loans are used productively or to build infrastructure. Some people worry that loans are abused and are often spent on consumption and that the present generation is burdening future generations. Take for example the Treasury Bills worth $US2.5 billion that were issued between January and September 2018. They were issued to finance the budget deficit because the government had spent more than it had budgeted.

However, if loans are used to build infrastructure, they will also benefit future generations. One only has to look at the Kariba Dam on the Zambezi River. At a cost of US$480 million in 1955, it could not have been built without loan facilities. These loans took decades to repay but no one can question that it was a worthy investment, one which has definitely benefitted generations after it was constructed. More work is being done now, also funded by loans, to repair it and enhance its power generation capacity. If there is any error, it is that previous governments did not have the foresight to expand its capacity or to generate new sources of power, anticipating the rise in population and demand. Now power shortages are the order of the day.

The other problem with our government is that it has not been honest with creditors, even those from otherwise close friends. Last week, we read that the Chinese decided to suspend the billion-dollar projects they have been carrying out on key infrastructure because the government diverted millions of US dollars which were meant for the projects. This has made the Chinese very unhappy, causing them to temporarily stop the funding. These are self-imposed sanctions when the government abuses creditors’ trust and confidence.

One common way through which the government borrows money to be repaid later is by issuing a financial instrument called Treasury Bill (TB). If, say, the government wants $5 million, it will issue a TB to someone who is prepared to give it the money. To make the TB more attractive, the government will issue it at a discount. If the discount is 5% it will get $4.75 million now and the investor will have a TB with a face value of $5 million. That $250,000 represents the investor’s profit. This investor might sell it on to another investor and so on. When a TB matures, the government must repay and it usually does. TBs are considered to be very safe investments. Our government has used TBs to borrow money from local banks and some think it has done so excessively. But there is now a problem.

This week, the Governor revealed that the central; bank had “sterilised” funds in certain corporate accounts which it believed were being used to fuel the black market in foreign currency. A member of the central bank’s Monetary Policy Committee, Eddie Cross added that the frozen accounts belonged to businesses that had been holding TBs which had matured. The central bank feared they were using the proceeds of the TBs to buy forex.

While the ostensible reason for freezing the accounts might sound reasonable, the implications of this on government investments could be drastic. It essentially means the government’s TBs will be regarded as unsafe by the market if proceeds can be frozen on a whim, without due process. These proceeds are property belonging to investors and they have constitutional protections. The government is already notorious for violating property rights and this latest episode will send negative signals to investors. If crimes have been committed, the government should take legal action and apply due process, not act on a whim.

Constitutional safeguards on borrowings

Since borrowing money imposes a cost on the public and future generations, the constitution contains provisions that are designed to ensure transparency and accountability. I will state them in brief.

First, there is a provision which requires Parliament to set legal limits on how much the State can borrow. The amount of public debt, which include guarantees that the State gives. A guarantee is a promise to a lender who has given a loan to another person that the State will pay should the borrower default on its obligations to the lender. For example, if Air Zimbabwe borrows money from a foreign bank, the State would make a promise to repay the loan plus interest should Air Zimbabwe fail to pay up. This guarantee is known as a contingent liability and is part of public debt. It is important that the government exercises caution and prudence before standing as guarantor on any loan.  The Constitution states that there must be limits on loans and guarantees and any excesses must be authorised by Parliament.

Second, the Constitution also requires Parliament to prescribe the terms and conditions under which government guarantees may be given. Another rule is that the Government must publish terms of all loans and guarantees in the Government Gazette within 60 days of concluding the loan agreement or guarantee. This is designed to promote transparency in financial affairs. However, our government pays no regard to this provision and is regularly in breach.

Third, the Constitution requires the Minister of Finance to report to Parliament at least twice a year on the performance of all loans taken or guaranteed by the State. Furthermore, when the Minister presents the National Budget he is required to present a comprehensive statement of the country’s public debt. Often only a summary showing that Zimbabwe is in arrears is presented. Details of the public debt are often missing. As it is, Zimbabweans have heard that the Cairo-based Afrexim Bank has been providing facilities to support Zimbabwe’s currency initiatives since 2016, but details of these “facilities” have remained vague and unknown to Parliament and the general public.


Apart from borrowing money, the government may also benefit from grants that are given by foreign governments or organisations. These are usually wealthier countries providing assistance for specific projects. The difference between a loan and a grant from a foreign government is that a loan has to be repaid together with interest, whereas a grant comes with no similar obligations.

A good current example of a project being funded by a grant is the construction of the new parliament building in Mount Hampden by the Chinese government. The grant is reportedly worth $100 million. This is in contrast to loans which China has given for the refurbishment of the Hwange Power Station and the expansion of the Robert Mugabe International Airport in Harare. Nevertheless, it is important to remember that in relations between countries, as between humans, there is no such thing as “free lunch”. Therefore while grants may come with no financial obligations to pay back, they may come with conditions, written or unwritten, or indeed expectations to provide favours to the grantor in future.

Foreign aid and humanitarian assistance

Like many developing countries, Zimbabwe receives foreign aid and humanitarian assistance. The latter specifically comes to alleviate the effects of natural disasters such as floods, droughts and earthquakes. Therefore when Cyclone Idai hit Zimbabwe, Mozambique and Malawi, countries around the world mobilised humanitarian assistance. Companies and individuals also got together and provided assistance where government alone could have well fallen short.

Some assistance is for different social needs in communities, including health-care programmes, such as combating malaria, fighting HIV/AIDS or the protection and management of wildlife, such as the CAMPFIRE program. May Zimbabweans will be familiar with the work of organisations like DANIDA (Denmark); NORAD (Norway); USAID (US); and UKAID (UK) to mention just a few. Nevertheless, most people especially in rural areas might be made to believe that the food aid and other assistance is coming from the government and the distribution might be politicised. It does not belong to a political party and it should never be politicised and there should be no discrimination on the basis of political affiliation.

There are some economists who do not believe foreign aid is the answer to problems in Africa and other parts of the developing world and they have strong arguments against it. There are some people in wealthy countries that usually give foreign aid to poorer countries who are also against it because they think those countries should focus on the poor within their own jurisdictions. However, the debate over foreign aid is beyond the scope of the current article.


Remittances are funds that are sent to the home country by persons who have migrated and now live and work in a foreign country. Zimbabwe has produced many such migrants as a result of the political and economic crisis of the past two decades. There are millions in South Africa, Botswana, Great Britain, the US, Australia, Canada and the Middle East.  The remittances they sent home have been a major source of income for their families and of foreign currency to the country. In this regard, diaspora remittances may be seen as proceeds of export of labour, just as foreign currency received from the export of tobacco or gold.

Protecting Public Funds

I would like to end this part with a small section on safeguarding public funds. I have already shown how the Constitution establishes rules for transparency and accountability regarding state loans and guarantees. The Constitution also has rules designed to safeguard both public property and public funds.

One of the provisions (section 308) provides that persons responsible for the expenditure of public funds have a duty to safeguard such funds and ensure that they are spent only on legally authorised purposes and also in legally authorised amounts. Likewise, persons who have custody or control of public property have a duty to safeguard it and to ensure that it is not lost, destroyed, damaged, misapplied or misused. Parliament must enact legislation to provide for the speedy detection of any breaches of these requirements and to discipline and punish offenders as well as to recover the funds or property.

The Constitution also has rules that seek to prevent conflicts of interest for Ministers and other public officers. Conflicts of interest exist where a public officer or a person connected to them has a personal interest in a matter in which the public officer is required to make a decision. For example, if a company which is owned or connected to the Minister of Transport is bidding for a contract to build a road, the Minister would have a conflict of interest in the matter of awarding such a contract. The Constitution prohibits a Minister from placing himself in a situation that would give rise to a conflict of interest. Such conflicts are bad because they result in bias, favouritism and corruption. The Minister is more likely to prioritise his personal interests at the expense of the public interest.

Yet, in a country as small as ours, where politicians are also the major businessmen, conflicts of interest abound. You find absurdities where the chief executive officer of a bank which owes money to a state-entity is appointed as the Board Chairperson of that state entity. Incredibly, all involved may not even see that there is a conflict of interest. Currently, you get situations where advisers to the President are also major partners in government projects. It is hardly surprising that they end up using their proximity to power to acquire commercial advantages and personal profit.

Needless to say, if the government moved swiftly to enact and implement such laws, there would be less abuse of public funds and public property. There would also be fewer cases of conflict of interest.


I wanted to discuss the use of public funds, but this piece would be too long. It’s a matter that I will discuss another time. For now, it suffices to state that public funds raised in the ways discussed in this piece are supposed to be deployed to public purposes. There are a number of functions that governments perform such as defence; law, order and justice; health-care; education; transport and communication and also social protection. Advocates of small government argue that the functions of government should be limited and taxes must be reduced. This is a big ideological debate which we won’t discuss here.

What is critical is for members of the public to know that the public funds that the government controls and uses belong to them. The government is only holding them in trust for them. As for food aid and support to hospitals and clinics, most of that comes from international donors as part of humanitarian aid. It is important for the public directly and through their MPs, to keep an eye on how the government uses public funds and property. The national budget process is a fundamental part of this task and key stakeholders must be actively involved. People should be demanding accountability from their MPs who are participating in the pre-budget seminar at Victoria Falls. The MPs should be reporting back to the public, to show that their presence there is justified.

More critically, where the Constitution and laws relating to public finance have been breached, efforts should be made to take legal action. While our public interest litigation has done well to defend rights when the State has violated them, there is still much to be done to take a pro-active approach to enforce the Constitution. There is no reason why the Minister of Finance should not be legally compelled to disclose details of the loans taken by and guarantees given by the government over the past few years, which remain outstanding contrary to the Constitution.