The 2021 National Budget statement slated for Thursday this week presents a defining moment for fiscal authorities to save and redirect the economic ship out of its murky waters.
It’s a long way to safer shores, but the upcoming budget paper should seek to broaden the economic cake by creating an environment fertile for emerging and established businesses to grow after a devastating Covid-19 pandemic which has left the buttered economy on the brink.
Already, the Finance and Economic Development Minister, Mthuli Ncube has pre-empted growth forecast for the coming year to be around 7.4 percent anchored on agriculture and recovering commodity prices.
Various sectors such as ICT, tourism, retail and manufacturing will be equally important depending on the stimulus government will offer to players.
Nevertheless, the budget should prioritize providing levers to stimulate productive sectors (agriculture/mining) which will be crucial in substituting the huge import bill of goods such as maize, wheat and soya beans that can be easily produced locally.
For perspective, Zimbabwe only produced 1.06 million Metric Tonnes (MT) of cereal last year against a national requirement of 2.12 million MT creating an import gap of 1.06 million MT.
But the ability to stir the economy back on the rails will depend on prudent public spending to avoid total collapse of public finances.
This comes on the backdrop of concerns by the World Bank earlier this year over rapid accumulation of debt by governments in the sub-Saharan region since the COVID-19 pandemic broke out.
Too much expenditure by the government not supported by tax revenue will result in the unwanted outcomes for the economy, as it will exert pressure on local banks to fund public expenditure at the expense of productive lending as the case, in the not so distant past.
In 2020 government’s penchant for spending was exhibited when it undertook a lot of unbudgeted spending thanks to hyperinflation-induced revenue “surpluses”.
Despite government avoiding a supplementary budget mid-term, there was a substantial amount of unbudgeted costs that ensued which includes civil servants salary adjustments, COVID-19 allowances for health workers and the ZWL$ 18 billion COVID-19 stimulus package among others-all which obviously disrupted public finances.
There is greater need for the reassurance that spending will be restricted to the country’s means to manage public debt locally.
Externally, debt repayment remains urgent.
Early this year, the International Monetary Fund (IMF) Executive Board concluded that Zimbabwe was in debt distress, with large external arrears to official creditors, and encouraged the authorities to give impetus to reengagement efforts and debt management and transparency.
In particular, the IMF cautioned against continued recourse to collateralized external borrowing on commercial terms as this may potentially complicate any future arrears clearance operation.
Still on the regional and international level, the budget should draw a clear line that communicates the reengagement agenda in line with government’s new economic blueprint, the National Development Strategy.
A hostile approach to international stakeholders as reflected in the ruling Zanu PF stance on conglomerates such as Old Mutual and Seedco’s listings on the Zimbabwe Stock Exchange (ZSE) will need urgent intervention from a policy perspective to make amends with international investors and the diaspora market.
There is also a need to strike the right balance between consolidating revenue by casting the tax net wider and also offering relief to businesses still struggling to recover from the effects of the pandemic.
Industry and business captains at a recent state of the economy report raised concern over the tax regime which they said was restrictive of business growth.
The 2 percent Intermediary Money Transfer Tax is proving too costly for business to business transactions, SMEs Association founder, Farai Mutambanengwe said.
Alternatively, government could expedite the restructuring of State-owned enterprises and Parastatals which could boost its revenue heads.
The Minister’s statement should tick as many boxes if it is to instill momentum into this economy.
However, it should provide a detailed examination of the impact COVID-19 has had on all economic sectors furnished with statistics (not available currently) and this will lead to the secret passage that unlocks solutions needed to bring life back into this economy.
