eBusiness Weekly
Persistence Gwanyanya
A combination of austerity and revenue boosting measures shall be used to achieve this imperative. As espoused by the Transitional Stabilisation Programme (TSP), economic stability is necessary to set the platform for a robust economy and support Vision 2030, which targets the attainment of an upper middle-income status by 2030.
Consistent with this view, Treasury emphasised the need for the Government to live within its means, as a way to complement the revenue generating efforts, through mainly the new transactional tax system.
This is necessary to reduce fiscal imbalances and set the road map for the currency reforms. A permanent solution on our currency problem is seen as a precondition for confidence rebuilding, which is key to attracting the much needed investments into the country.
On austerity measures Professor Ncube didn’t have to reinvent the wheel as he largely picked from the already existing measures with more emphasis on co-ordination and implementation.
Similar measures were announced by the erstwhile Minister, Hon Patrick Chinamasa, to reduce budget deficit from around 14 percent of GDP then to the target level of about 4 percent in 2018. Poor co-ordination and implementation will see the fiscal deficit to end the year at 11,7 percent of GDP, supported by Professor Ncube’s measures.
It’s regrettable that we have been missing our targets for a long time, which makes the whole budgeting process appear like an academic exercise. We hope with proper co-ordination and implementation this time is going to be different.
Treasury targets to reduce budget deficit to 5; 4,1 and 3 percent in 2019; 2020; 2021 respectively through mainly cost cutting measures, which include reduction in the wage bill, parastatal reforms and more operational efficiency. However, this will only be achieved through proper co-ordination and implementation.
It’s comforting that the Minister recognised the need for senior Government officials to lead by example to 5 percent basic salary cut effective the beginning of next year. However, there is still scope to reduce the wage bill to the recommended 60 percent of budget through reduction of allowances that make up about 40 percent of it.
The extension of revenue collection efforts into the informal sector through the newly introduced 2 percent Intermediate Money transfer Tax, is expected to boost revenue flows into the Treasury. For an economy such as ours, which is believed to be the most informalised in Africa and probably second in the world at 61 percent, with between US$2-7 billion estimated to be circulating in the informal sector, the new tax system is seen as more efficient and effective.
The adjustment of other tax heads, which mainly apply in the formal system like PAYEE was necessary to lessen the tax burden to those in the formal sector and thus encourage increased participation in this sector. This is why it was necessary to review the tax-free threshold from US$300 to US$350 and further widen the tax bands from US$351 to US$20 000, above which income is taxed at the highest marginal tax rate of 45 percent.
However, I am of the view that the minister should have also reviewed upwards the minimum taxable amount under Intermediate Money Transfer Tax from the current US$10 as well as reduce the maximum tax from the current level of US$10 000 to lessen the tax on the poor and reduce inflation risk.
In what could be seen as admission by Government that the economy is dedollarising, the Minister ratified Zimra’s position on companies that collect tax in foreign currency to remit them using the same mode of payment.
In the same light, the minister introduced duty in foreign currency on motor vehicles, which is seen as discouraging their importation as excise duty on fuel has also been increased by 7 cents per litre on diesel and paraffin and 6,5 cents on petrol.
It’s comforting that Treasury is prioritising the correction of the breach on the overdraft on RBZ as well as national debt. The Central Government’s overdraft on RBZ, which is currently at around US$2,5 billion or 60 percent of previous year’s revenue, represent a breach on the statutory of 20 percent.
While the re-basing of the economy to US$24,8 billion from US$21 billion resulted in a significant adjustment of the debt to GDP ratio towards the statutory limit of 70 percent, there is risk that we will end the year in breach as total debt is expected to close the year at US$18,076 billion against GDP of US$24,5 billion. This further demonstrate the need to tighten the belts.
The country’s appetite to borrow is concerning. In less than a space of a year the country has borrowed around US$4 billion, which has seen domestic debt almost doubling to the current levels of US$9,5 billion.
However, we expect a significant reduction in borrowing as other expenditures such as those related to elections, which chewed about a billion were once-off and not expected to recur. Agriculture support scheme which consumed a significant chunk will be reduced through increased private sector participation in agriculture funding.
Parastatal reforms are also expected to reduce Government borrowings. These factors partly explain the reduction in budget deficit highlighted earlier. As such a significant reduction growth of TBs which stood at US$6,2 billion as at end of August, is expected in line with the projected reduction in expenditures. The issuance of these debt security is now going through Parliament and done through the auction system for transparency and price efficiency.
The new agriculture policy emphasises increased private sector participation in funding of agriculture, which entails gradual withdrawal of Government support through programmes such as Command Agriculture and Presidential Input Scheme. While no one doubts the necessity of these programmes in providing feed stock to our farmers, it’s equally important to realise that their funding through mainly TBs is unsustainable.
Private sector participation is going to be through programmes such as contract farming.
It’s comforting that a number of oil pressing companies have started to advertise their soya contract farming programmes. Government support to the agriculture raw materials manufacturing companies and bankability of 99-year leases are seen as positive developments.
Setting out of timelines for parastatal reforms is a welcome move as it makes it easy to trace progress. About 41 parastatals have been identified for privatisation, partial privatisation, listing on ZSE, liquidation, merging and adoption into line ministries. The urgency of parastatal reforms cannot be overemphasised as in 2016, the few audited state entities made a combined loss of US$270 billion with 70 percent of these were technically insolvent.
Professor Ncube has already indicated that the multilateral institutions who are owed about US$2,4 billion in arrears have already indicated that they are happy with the current efforts to resolve the country’s arrears mention that debt is not a viable growth strategy for the country today.
This funding option is also inflationary. There is need for the country to mobilise financial resources for investment into viable development programs. While the new tax regime will go a long way to achieving this, there is need to build a saving culture for the country. This is only possible when we have a permanent solution to our currency problem.
Currency instability in Zimbabwe is quite concerning and a very sensitive subject. As dedollarisation unfolds before our eyes it’s critical that Treasury provides a credible roadmap for the necessary currency reforms. Professor Ncube indicated plans to introduce a long bond to mop up excess liquidity. It’s clear that the exchange rate peg is no longer delivering the required results and should be revisited.
It is clear from the budget that we cannot expect a robust growth when we are tightening the belts. That’s why the economy is now expected to grow by 4 and 3,1 percent in 2018 and 2019 from the STP projection of 6,3 and 9 percent respectively.
Persistence Gwanyanya is an economic and financial expert. For feedback WhatsApp +263 77 3 030 691 or email [email protected]
