eBusiness Weekly
Misheck Ugaro
Themed as Reinforcing Sustainable Economic Recovery and Resilience, the Honourable Minister of Finance and economic Development, Professor Mthuli Ncube, has announced a proposed $927 billion budget that seeks to enhance the progress achieved so far since the economic reformation process that started with the Transitional Stabilisation Programme (TSP) in 2018 and was succeeded by the launch of the National Development Strategy 1 (NDS1) in 2021. The $421,6 million 2021 budget was the first building block towards the implementation of the NDS1 and now being followed by the current proposed budget for 2022.
With a projected economic growth of 7,8 percent for the year to December 2021, the proposed budget builds on the strong showing over this preceding year. There are major positive highlights that strengthen the trajectory the economy has taken while a few misses have also been noted in the proposal.
Positives
The 2021 outturn shows a revenue collection of $317 billion against an expenditure of ZWL352 billion resulting in an actual deficit of $34 billion as at the end or the third quarter 2021. This deficit is forecast to fall to $14 billion by the end of the year 2021 in line with the NDS1 target of maintaining a budget deficit below 3 percent of GDP. This shows that while delivering a solid GDP growth, the government has largely lived within its means despite all the pressures of exogenous factors including the Covid-19 pandemic.
Notably Zimbabwe has attained an impressive 38 percent and 29 percent first and second vaccination doses respectively towards the intended 60 percent herd immunity. This compares favourably against all of the countries in Sub Saharan Africa which are well below this mark.
The proposed budget targets a financing gap of $77 billion (1,5 percent of GDP) well in line with the NDS1 target. This will be financed through government borrowings in combination with SDR drawdowns. What is of particular note is the targeted spread of expenditures in line with the national priorities. As such, the Minister has set the following limits in line with best practice:
Recurrent expenditure 13 percent of GDP
Capital programme 5 percent of GDP
The Minister revealed a raft of tax reliefs that will go a long way towards improving the disposable incomes of people. These include the adjustment of the personal income tax free threshold from $10 000 to $30 000, the review of bonus tax free bracket form $25 000 to $100 000 as well as a relaxation on the retrenchment packages.
This is a good move specially targeted at the household sector. This should in turn boost demand for goods and services and promote further economic growth.
Also notable is the special allocation of $400 million towards rural development for the provision of amenities and requirements, including solid waste management, such as flush toilets beginning with schools and health centres.
Additionally, the Minister revealed that the Government will support the 200ha irrigation development per each district as a way of promoting income generation at district level, as this also supports economic activity at local levels. This is a good proposal towards reversing the rural-urban migration.
The SDRs allocation, which had formed the basis of speculation amongst the public, has been clearly revealed. This is a commendable illustration of transparency by the Government of Zimbabwe.
Generally the budget proposal is well balanced covering priority areas in line with the NDS1. Of particular note is the effort to assist Industry as it is about the only sector whose expected growth for 2021 has been revised downwards from an original 7 percent to 6 percent. The Minister has proposed several measures and allocated a sizeable $3,9 billion to the line Ministry.
A particular objective to capacitate the Industrial Development Corporation has been noted. However, in the misses below we also take note of the potential downside risk of this measure.
The proposed budget is, therefore, regarded as robust and will reinforce the positive results already achieved so far from the implementation of the NDS1. However, there are a few areas that could have been addressed with more focus for an even better outturn of 2022 as the country marches towards vision 2030.
While value addition and beneficiation from mining are key to a successful delivery of the NDS1 objectives, the budget seems to have missed the indication of policy measures that will promote activities in the value chains of all sectors, i.e. agriculture and mining. In fact the Industrial Development Corporation, has been allocated half a billion Zimbabwe dollars in order to capacitate it as it represents government interests in several sectors of the economy without any specific benchmarks as to what these funds will be utilised for.
As the Minister himself set limits of expenditure at the policy level on such areas as recurrent and capital, it is also prudent for the same to be done for the IDC if the allocation is to result in positive capacitation of the actual beneficiary operative companies. That allocation must have performance related goals clearly stated to the public. While on the same note, the resuscitation of such key operations as ZISCO still need a clearer vision.
The budget proposal has been rather meek on issues to do with climate change, apart from showing the budgetary allocations. This issue is a global concern at the moment and even enlisted the visit of the State President to the COP26 in Glasgow, Scotland in the last few weeks. Government policies regarding deforestation arising out of Tobacco treatment as well as the soil degradation arising from artisanal mining activities need serious government attention.
On one hand these are necessary activities that have helped the country achieve the robust 7,8 percent GDP growth mentioned above but, on the other hand require a solid and clear policy direction.
Lastly, while a sin tax on tobacco and a few feezie drinks will be ring fenced for the benefit of victims of non-communicable diseases, which is a good social measure, it appears the budget has not considered another serious social challenge facing the general public. The issue of public transport is one of the highest difficulties facing the general public and it would be necessary for the government to highlight policies towards alleviating this area in future budgets.
We congratulate the Honourable Minister for delivering a solid proposal that will “Reinforce a sustainable economic recovery . . . ” of our country.
Misheck is a former expatriate banker based in several SADC countries and currently works as a corporate advisory services consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is the Vice President of the Zimbabwe Economics Society. He can be contacted on (263) 777052004/712808140/[email protected]/Linkedin: https://www.linkedin.com/in/misheckugaro/Twitter: @twitcagan.com
