Home | Feature | IMPACT OF REVENUE, EXPENSE MISMATCH ON ECONOMY

IMPACT OF REVENUE, EXPENSE MISMATCH ON ECONOMY

Font size: Decrease font Enlarge font

One observes with concern the current state of the economy and the prognosis going forward does not at all look good.

The recovery that was meant to hitch on government consumption is at stake given the state of the fiscal purse. One is reminded of the dire cash flow problem the government had in 2010. We are seeing student allowances not paid in time; drive around the country and you notice that a number of construction projects have been halted. The evidence is stark and cannot be contained and no amount of PR can cover the elephant in the room. One then asks what needs to be done at macro, meso and micro levels to help the country get out of the wood. We need, now more than ever, to map out a sustainable way out of this problem, it is becoming a rather common problem and we may end up mistaking it for a normal situation, we need not get comfortable.

Revenue conundrum

We have not posted a surplus in the past couple of years and hence for government to finance its consumption it has to rely on revenue gathered within the period. The problem at hand is an indicator to the fact that the revenue authority may be missing on set targets, hence the money collected is not sufficient to cover all expenses. The revenue and expenses mismatch is very deadly for the economy as it forces businesses and consumers alike to downgrade their expectations of the economy.

This tends to dampen the expected growth catalysing effects of government expenditure. If government does not have enough money to pay suppliers, the rate at which money flows in the economy is slowed, and if businesses are not receiving the expected cash on time, this means that they cannot reinvest into more productive means, to make more money out of that Lilangeni received from government; in essence the expected multiplier effect of the government expenditure is not realised. The expected demand from the recipients of scholarship beneficiaries is not realised and yet another lost opportunity to spur growth through aggregate demand.

Hence these challenges within government tend to reduce the potency of the Lilangeni in growing the economy. It may also result in serious adverse effects on businesses that have tied up capital in supplying government with the expectations of a payment within the standard 90 days payment cycle period. In essence, government will have transferred its cash flow problem to businesses and this may result in the closure of those entities and ultimately unemployment, exacerbating the problems we have as a country. Government needs to ensure that it sets a realistic budget, one that can be financed within the expected revenue streams.

Alternate consideration

The problems we are facing as a country maybe cash flow reconsideration. It may be that we need to invest in strong cash flow management systems and prioritisation systems. We need to time our expenditures well, it might be that the revenue being collected is sufficient to cover the budget, but we are just not timing our payments to dovetail with sufficient revenue. We could, for example, reconsider quarterly payments of student allowances or bi-annual payments. In this way we would have enough time between revenue collection and expensing. Also consider timing contracts to coincide with revenue availability, time deliverables and payments to mimic trenches of the revenue receipts from the customs union. In this way we attain the expected multiplier effect from each Lilangeni spent from the public purse. Proper technical planning is also required from government to ensure that the expectations set are met and this will also improve the people’s confidence in government and the economy.

Business response

One understands that businesses are really being hit hard by the prevailing problems within the government machinery, and the economy is not staking fair odds on business. However, every crisis has its winners and losers. Business needs to strategically place itself in the winning end of the spectrum. This is an indicator to the pressing need for a diversified business portfolio that will not be overshadowed by government consumption, this makes good business sense. Furthermore, it is business or rather the private sector that can lead us out of this situation. We need private sector-led growth and government should be there to ensure a conducive policy environment. The role that government plays in business needs to be downscaled significantly to reduce the impact of government on business operations.

Moving forward

Our hope, as a nation, dwells on the private sector taking lead and government rationalising its expenditures and stopping revenue leakages and ultimately reducing unnecessary and wasteful spending. Households need to start rationalising their expenditures as well, improve on savings to have enough money for a rainy day. There is also need to have investments or savings denominated in foreign currency, this will be crucial for households and businesses alike and will cushion them from exchange rate pressures. The economy needs concerted efforts across the macro, meso and micro levels.

Comments (0 posted):

Post your comment comment

Please enter the code you see in the image: