eBusiness Weekly
Misheck Ugaro
The recent budget for 2020 announced by the Minister of Finance and Economic Development, Professor Mthuli Ncube, should become a national consensus building basis.
The budget, which can best be described as a social budget, carried many well balanced proposals that are beneficial to the country both economically and socially. Themed “Gearing for Higher Productivity, Growth and Job Creation” it promotes productivity and economic growth going forward. What is required now is strict implementation and adherence to the allocations to achieve the stated targets.
The country has faced an economic down turn over the last six years from 2013, culminating in the forecast contraction of 6,5 percent by the end of 2020. This has necessitated a drastic turnaround strategy.
While the budget has come under some level of criticism, it is also fair to say it is time the nation focuses on the way ahead. The Minister set an expected growth target of 3,5 percent for 2020 coming out of a contraction of 6,5 percent in the current year, 2019. In order to achieve this remarkable turnaround, the nation should put differences aside and work to the success of the proposal. The outlook is positive and various measures are proposed in the budget, which generate confidence and are aimed at mitigating most of the historical challenges. All sections of the nation have a responsibility to ensure the success of these measures.
Zimbabwe has battled with an out of control budget deficit, low productivity and capacity utilisation in industry, low employment levels, current account deficit, inflation and a galloping exchange rate for the local currency, which depreciated heavily from the 1:1 peg in February 2019 to 15,75 on the interbank market and estimated at 20,5 on the parallel market against the United States dollar. Added to this have been recent exogenous factors such as Cyclone Idai and a severe drought.
The highlights of the budget include some of the following strong measures/proposals which should provide a source of confidence and a basis upon which the nation should unite.
Spending outside budget
Quote: “ Strict adherence to the procedures laid out in the Public Finance Management Act [ Chapter 22:19 ], including the issuance of warrants by the Accountant General prior to any spending commitment made by an accounting officer will also be strictly enforced. Rule of law will be the order of the day ” emphasis added.
The main objective of enforcing this piece of legislation in support of fiscal policy is to manage expenditure within the allocated financing. In this regard, the role of parliamentary committees such as the Public Accounts Committee (PAC) and the Budget, Finance and Investment Committee is critical.
The nation’s hope is vested in these committees and other relevant portfolio committees to reign in any way ward expenditures. This has been a historical challenge of the country and disrupted the attainment of many of the Transitional Stabilisation Programme (TSP) goals. It is the responsibility of all of us to ensure set limits are respected and complied with.
In line with this objective, the Minister provided the following framework of tools and targets:
- Deliver a budget deficit aligned to the SADC threshold of under 5 percent of GDP, allowing it at that level only exceptionally. 2. Zero tolerance to expenditures outside parliamentary approvals (We really need a bulldog parliament & committees). The Minister referred to “HARD” budget constraints and this noble objective deserves strong support from all stakeholders from men and women on the street through their representatives in parliament, up to Industry, Investors and the academia.
- Prioritise infrastructure and social spending. The budget carries significant pointers to this scope under the 2020 Infrastructure plan within the equitable and inclusive theme.
- Prudent phased expenditure approach and,
- Progressive taxation system
Fiscal policy will be supported by non-inflationary financing complimented by a tight monetary policy. In addition, the subsidies that have caused market distortions such as fuel, electricity and agriculture have been removed.
Targeted subsidies to protect the vulnerable sections of the society have instead been proposed. Interestingly, the Grain Marketing Board subsidy has been removed as it has been open to abuse and placed a huge burden on the fiscus. This is a commendable move in particular where the millers have been left with the freedom of choice between purchasing from GMB or to directly import their required grains competitively while at the same time the consumers’ targeted subsidies on the production of roller meal, cooking oil and the standard loaf of bread provides a safety net for the vulnerable.
Single Exchange Rate
The country has historically faced an unstable and inefficient foreign exchange market. This has contributed to an unstable environment with rising inflation and an inefficient pricing system based on exchange rate expectations. It has also led to unbudgeted for subsidies through the allocation of foreign currency at preferential rates to some players, in particular to fuel importers. A single exchange rate regime throughout all sectors of the economy will now be applied thereby avoiding implicit subsidies.
Productivity
The budget has various proposals geared at revamping all key sectors of the economy but starting focus on agriculture, mining, tourism, manufacturing as the quick wins.
For agriculture in particular, reference is made to the resolution of the bankability of the 99-year-leases which will gradually remove the necessity of Government guarantees. Of interest to farmers are the allocations targeted at irrigation, veterinary, farmer compensation, agricultural education and extension services, crop and livestock research and technology and land survey and mapping.
Manufacturing is buttressed through support of the Industrial development policy by actualising value chains and implementing the Local Content Strategy, initially targeting support to the pharmaceuticals, tyre production, hides and leather processing as well as steel production.
A major highlight under this objective is the various tax incentives aimed at promoting investment as well as promoting retooling of industry. These include suspension of duty on Semi-Knocked Down (SKD) kits used by the Motor Vehicle Industry aimed at resuscitating car assembly in the country to substitute imports. The capacitation of the Industrial Development Corporation as well as the creation of the State Venture Capital fund comes as good news to entrepreneurs who have been struggling to raise finance for their projects. There are several tax incentives aimed at promoting employment of the youth.
With the focus clearly at the productive sectors including an increased capital expenditure budget of $12 billion, (20 percent of the revenue budget) the funding of the Beitbridge/Harare dual carriage way ($1 billion), the several dam and irrigation projects should be ideals supportable by the nation.
Supporting Infrastructure
The 2020 budget is inclusive of funding for the necessary supporting infrastructure and is detailed in the 2020 Infrastructure Plan covering Transport, Energy, Water and Sanitation, Agriculture Infrastructure, ICT, Housing, Health and Education.
Conclusion
Zimbabwe needs a unity of purpose at this stage and the oversight role of parliamentarians cannot be overemphasised. The budget proposal is balanced well and deserves total support and respect for success, differences aside, for the prosperity of the nation.
Misheck Ugaro is an economist, a former expatriate banker based in several SADC countries and currently works as a corporate advisory services consultant. He is a member and past Vice President of the Zimbabwe Economics Society and can be contacted on email: [email protected]
