Finance minister Mthuli Ncube tried to maintain his fiscal consolidation plan last week when he presented the 2021 national budget that projected an ambitious 7,4% gross domestic product (GDP) growth.
news in depth:BY SHAME MAKOSHORI
This would represent one of Zimbabwe’s steepest growth phases since 2013, as GDP is projected to fall by -4,1% this year.
As in the growth targets, the minister tried to douse diminishing confidence in the economy by predicting that after ending 2020 at 336%, annual inflation, one of the biggest headwinds confronting Zimbabwe, will retreat to 135% next year.
In short, the minister illustrated how his policies will maintain the exchange rate stability experienced lately, thereby cooling off rampaging prices.
Trying to instil discipline in public spending was one of his biggest attempts.
But to economic analysts, Ncube was still far off the mark.
With a growing population now estimated at 16 million, from 10 million when the country adopted a multi-currency regime in 2009, Zimbabwe’s national budget has remained static at only about US$4 billion.
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It explains why poverty has been tearing through remote provinces lately, turning communities upside down in regions of high unemployment rates.
The cake has been shrinking, and radical reforms are now imperative to drive revenues into state coffers to save the people.
Batanai Matsika, head of research at Morgan&Co, says it is a huge cause for discomfort to live on a shrinking budget.
Matsika said authorities must find ways of growing the budget so that their interventions can be felt in all social spheres and help bolster efforts to revive the economy.
He spoke to The Standard after Ncube delivered a $421,6 billion (about US$4 billion) budget last Thursday, which is heavily inclined towards funding employment and other consumptive expenditures.
Revenue collections are projected at $390,8 billion in 2021, with a $31 billion deficit.
Still, the $421 billion falls far behind the $1,1 trillion proposals that government ministries and agencies had requested.
“If you look at the figure itself, it’s just US$4 billion, so it shows government has constraints in terms of revenue generation,” Matsika told The Standard. “The revenue base is limited and there is need to grow the base by stimulating productivity.
“There is need for external investment, which means we need re-engagement.
“Mthuli (Ncube) should look outside Zimbabwe and see where we are competitive.
“He should have funded mining and agriculture more instead of trying to resuscitate Ziscosteel where we are not competitive,” he added.
It is easy to see why the country is battling a diminishing revenue base.
The relentless meltdown has intensified in the past year, pushing tax-paying manufacturing industries to the brink, clobbering revenues and stifling volumes growth, thereby diminishing hopes for the growth projection.
At the heart of the crisis that has blown out of control, but remains largely glossed are continuing forex shortages, declining buying power and fuel and power supply bottlenecks, which have been compounded by the Covid-19 scourge.
The Employers’ Confederation of Zimbabwe says firms responded by throwing one million workers out of jobs, with the tourism industry retrenching 25% of its staff, according to the Zimbabwe National Chamber of Commerce (ZNCC).
Another economist, Evonia Muzondo, said she was worried that while economists like Matsika felt the national purse has remained static, in real terms, funding being injecting into supporting Zimbabweans has been shrinking.
Muzondo is worried that the 2021 budget falls short of addressing the drawbacks that have held back recovery.
“The policy won’t give the much-needed impetus for the market to move,” she said.
“The budget hasn’t spoken about what needs to be done for local and foreign investors to invest.
“It doesn’t instil confidence. “Problems in the economy are known.
“This agricultural season doesn’t look very promising.
“But they (government) haven’t done anything to mitigate in the event of another drought.
“(Revenue) collections of below of $173 billion are about US$2,1 billion at the prevailing exchange rate.
“We used to collect close to US$4 billion. So in real terms, the market has shrunk by half.”
The biggest weakness of last week’s budget was its less focus on growth-stimulating capital expenditure.
Of the $421,6 billion, capital expenditure will constitute $131,6 billion, against $290 billion for recurrent expenditure.
Public investment in infrastructure and other growth-stimulating projects drive economies.
But in the past decade, national budgets have been drained by public sector wages.
In his budget, Ncube said employment costs will gobble $172,6 billion in 2021, which is far ahead of the capital budget.
“Total bids submitted to Treasury by various line ministries and departments are much higher than the capacity of revenues and borrowings,” he said.
“Therefore, given the macro-fiscal stabilisation objectives of the budget and the National Development Strategy 1, adhering to an expenditure ceiling of $421,6 billion becomes imperative.”
Analysts questioned how the deficit would be funded, given Zimbabwe’s poor relations with international financiers.
But the minister said most of the deficit would be funded by development partners, who are expected to chip in with US$841,5 million.
Of this, US$559,3 million is expected from bilateral partners, with US$282,1 million coming from multilateral partners.
Ncube said from January to September 2020, a total of US$579,8 million was disbursed by development partners, of which US$448,4 million was the bilateral component whilst US$131,4 million was from multilateral partners.
A total of $46,3 billion was allocated to the ministry of Lands, Agriculture, Water, Climate and Rural Resettlement with a view to increasing agricultural output to US$8,2 billion by 2025.
“Government support is being complemented by private sector and individual farmer initiatives as well as development partner support,” Ncube.
“Consequently, for the 2020/21 farming season, a contract equivalent to US$253 million has been signed with local banks to support commercial farmers, and government is providing guarantees on a case-by-case basis.”
The ministry of Primary and Secondary Education received the biggest allocation of $55 billion, followed by the ministry of Health, which was allocated $54,7 billion.
In the security cluster, the Defence, Security and War Veterans ministry was expected to get $23,8 billion while the Home Affairs and Cultural Heritage ministry vote was $23,6 billion.
Other economists questioned the growth targets set by government.
“He (Ncube) is dreaming,” said CEO Africa Roundtable chairman Oswell Binha.
“When you make a projection, you have to make an honest assessment of where you are today.
“You also have to consider that when you make these proposals, some of them will be challenged and some of them will be resisted.
“I will be the first one to congratulate him if he achieves the 7,4% growth.”
ZNCC CEO Chris Mugaga agreed with Binha.
“It is not feasible. We are coming from a very low base and there are too many irregularities in the budget,” Mugaga pointed out.
“It is overly ambitious,” he added.
Business consultant Simon Kayereka said a number of factors militate against Ncube’s growth projections.
“If there is going to be any growth, I estimate it will be around 3%,” Kayereka said.
Ncube last week delivered a $421,6 billion (about US$5 billion) budget.
Public sector employment costs will take the biggest amounts of the national purse in 2021, according to the budget. Ncube said revenue collections are projected at $390,8 billion (about US$4,8 billion) with a $31 billion (about US$383 million) deficit.
