eBusiness Weekly
Misheck Ugaro
The Minister of Finance and Economic Development, Professor Mthuli Ncube, may pull the rabbit out of the hat after all. In the budget statement presented at parliament on 14 November 2019, many of the long stand out issues are being addressed. Critiques may go as far as saying this statement, should instead have been his maiden one instead of the TSP followed by the austerity measures.
This statement carries a raft of the measures that economists have long been calling for. The argument could be these should have been carried out long before, even without implementing a Structural Transformation Programme.
The austerity measures were implemented on a contracting economy and hence were destined to be unsuccessful. The sequencing may have been misplaced. The Minister is to be commended, however, for tacitly acknowledging this fact by suspending the austerity measures and now proposing this new trajectory.
It is aptly themed Gearing for Higher Productivity, Growth and Job creation. The Minister quipped though that pain first was necessary.
Many challenges still remain but stakeholders across the whole cross section of society will be pleased by many of the proposals including these highlighted below as they have beneficial long term positive impact on the economy. In particular, the strategy to promote production is significant in supporting the local currency which is now in use.
Production and the resultant exports is the single most important factor for establishing confidence on the local currency. The proposal will result in a crowding in of the productive sector and promote GDP growth. Many challenges still remain though, but many positives can be deduced from the statement.
Coming out of a very challenging background of austerity for posterity measures, the economy is projected to contract by 6.5% by year end. Although monthly budget surpluses amounting to a cumulative ZWL1,4 billion to August 2019 and the current account showed a surplus of USD114m for the same period, the statement did not, however, show what the likely out-turn will be to December 2019 for these two measures.
However, given the supplementary budget presented by the Minister earlier in the year, it can be concluded that the initial cumulative surplus will be wiped away. Inflation has also remained very high with some estimates pegging it at above 500 percent. A disclosure of the actual inflation rate currently applying would have helped in assuring the market.
The budget is premised
on 5 pillars:
- Productivity and growth; 2. Jobs creation; 3. Competitiveness; 4. Promotion of more sustainable and inclusive development; 5. and Export diversification and import substitution.
Among a raft of measures that have been proposed, the following are essentially notable:
- The infrastructure plan. For once a significant proportion of the proposed ZWL58 billion is aimed at Infrastructural development (ZWL 12 billion or 20 percent). This ties in well with the productivity objective. This is a historically high allocation against all our previous budgets and relates very well with international standards. This is of particular note if one considers that our government has had recurrent expenditures accounting for above 90 percent.
- 2. Enhancing productivity: in agriculture, mining, industry (and on this particular note the Industrial Development Corporation is to be capitalised and allocated ZWL240 million and further enhancement measures targeted at Pharmaceuticals , Tyre production , Hides/leather processing and Steel production ) , Growth points and Tourism
- Job Creation plan. In this line a new concept is proposed and that is aimed at the youth. This is the Youth Employment Tax Incentive (YETI). A national Venture Capital Fund has also been proposed in order to support newly established ventures with proper funding structures without necessarily burdening them with debt. A figure of ZWL500 million has been proposed for this venture. The Minister has proposed tax incentives for employment intensive projects such as roads and other construction projects including dams and irrigation structures. Further the Minister proposed Women, Youth, Empowerment and MSMEs funding of up to ZWL335 million.
These among many positive measures will have a direct impact across all sections of the society. Pensioners have been rewarded with an adjustment of their payouts from about ZWL50 to ZWL600 per month. Individual minimum tax threshold has been reviewed upwards from the current ZWL700 per month to ZWL2000 per month. Corporate tax has been reviewed downwards from 25 percent to 24 percent among many other tax incentives that have been dished out.
The budget statement basically has something positive for all parts of the society. However, significant challenges still remain in the road ahead. The endemic level of corruption that is facing the country has a negative pull on these efforts. The Minister alluded as well to a change on the budgetary process from being a program Based Budgeting system (PBB) to a Results Based Budgeting (RBB) process with the hope of reigning in wayward over expenditures by Ministries. This is a very positive development if implement in full because all expenditures will be accounted for periodically to parliament and there will be no pressure to exceed the targeted budget deficit of 1 percent-2 percent of GDP. It is now up to the relevant parliamentary committees to monitor and insist on proper expenditures in line with approved budgets.
At the end, while the road on austerity has been difficult and painful, and one can say did not achieve the intended results, one can take hope in this new direction which is proposed. Many would like to see the direct positive impact of these measure on areas that the people on the street particularly feel and experience. This relates to the health sector, especially the operations of the medical facilities and availability of drugs, transport, residential housing and education. The Minister has justifiably provided measures that touch all these sectors, and although the impact may not be over night, but may rather be over the next half year to full year for it to be felt. The Minister may be pulling the rabbit out of the hat at the end of the day after all.
Misheck 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. [email protected]
