FINANCE minister Mthuli Ncube will this month revise the 2021 national budget during a time when Zimbabwe has registered mixed fortunes in efforts to achieve targets originally set in December.
But as Stevenson Dhlamini (SD), an applied economics lecturer at the National University of Science and Technology, tells our senior business reporter Mthandazo Nyoni (MN) in this interview, resources must be deployed towards social safety nets to save millions of people affected by the gruelling crisis that has been compounded by the Covid-19 crisis.
Below are excerpts from their discussion….
MN: Tell us about your 2021 growth expectation?
SD: My expectations are based on observations of the first quarter and the half-year performance of the economy, which has been on a positive trajectory. We have experienced positive economic growth and an inflation decline from 300% in December to 106% presently. Government has projected around 7% economic growth.
That will be a bit too high given that inflation is still within the triple-digit range, and the level 4 lockdown continues. A downward revision of to about 5% will be in order. We have had a good harvest. This will boost agriculture, which is a growth driver.
We are likely to see improvements in mining earnings due to recent reforms.
I think mining will perform well in the second half. This is going to be part of the two main drivers of economic growth.
MN: But the energy crisis continues, which affects mining output.
SD: Reforms have also been kicked off in the energy sector. There are renewable energy investments that are likely to propel economic growth during the second half of this year.
But I appreciate that there has been a decline in imported electricity and capacity utilisation at Hwange power station has declined.
This will affect growth projections that the minister made. The two main drivers are going to be agriculture and mining, complemented by the energy sector. In terms of growth, I am expecting at between 3,5% and 5%.
MN: What is your inflation outlook?
SD: Inflation will end the year around 56%.
The government has projected about 20%, but I think it’s a bit ambitious despite the positive growth outlook. Inflation is currently hovering about 106%, which is a significant drop from around 300% in January. We are likely to see the introduction of higher denomination notes like the $100 and $200 bill. These are likely to undermine the 20% inflation target. A projection of around 56% would be healthy.
Improved capacity utilisation will contribute to the inflation decline. For the first half of the year capacity utilisation improved.
MN: Do you see government introducing US dollar salaries?
SD: I am confident that the minister will not introduce US dollar salaries although my expectation is that he will revise civil servants’ salaries and peg them to the official exchange rate to ensure that they come closer to 2018 salary scales.
We are looking at the poverty datum line (PDL) of around $40 000. The majority of civil servants, if not all, are way below the PDL.
MN: Do you expect changes in the tax regime?
SD: We are not expecting much changes because the government is already posting surpluses.
But we do expect that there will be a cushioning of civil servants in terms of tax thresholds.
The minimum tax thresholds must be revised.
However, the minister may wait until the end of year before revising tax thresholds.
He is going to ensure that the government still has sufficient revenue to sustain his expenditure without borrowing.
Corporate taxes are likely to remain the same.
MN: Talk to us about parastatal reforms.
SD: For parastatals, I expect that he (the minister) will introduce a number of programmes for retraining executives in leadership and governance because there has been a growing increase in corporate governance deficiencies.
We also expect that he will set up some taskforce especially in governance to reduce blatant mismanagement of public resources. We expect that he is going to come up with a taskforce to ensure that local governments adhere to governance principles and improve operations because that is causing significant leakage and wastage of resources.
MN: Do you expect significant movement on social safety nets?
SD: The World Bank and other observers have concluded that more than seven million Zimbabweans will require food assistance. We expect the government to revamp cash grants distribution and extend it beyond rural communities to include urban vulnerable populations.
A lot of people have lost jobs during this pandemic.
A lot of people are more vulnerable to hunger and extreme poverty than before.
I understand the cash grants have been temporarily stopped and social welfare grants have been stopped.
But we are expecting that the government will revamp that and cushion people, especially the elderly.
We are expecting that the Basic Education Assistance Module facility is going to be revamped because there has been an increase in the rate of school dropouts.
More than 30% of students have dropped out of school because of economic hardships.
We are seeing a lot of people failing to register for their O Level examinations.
MN: These are very high dropout numbers.
SD: We are expecting that the minister will come up with interventions to cushion students.
We are expecting that the minister will come up with social safety nets targeting those in the informal sector and small-to- medium enterprises because it has been the hardest hit.
Most people have gone into the informal sector because of the pandemic and the economic transformation provoked by the pandemic.
It is also our expectation that more resources be committed to improving the livelihoods of the general population because there is no use in boasting of a budget surplus when people’s livelihoods are compromised.
That will be a cruel growth.
We are not expecting the country to boast of a surplus or an economic growth at the expense of people.
So, our expectation is that social safety grants are going to be boosted in line with inflation levels so that on average a family of six can earn at least close to
Social safety nets should be in line with the cost of living.
MN: Will the minister revise budget allocations?
SD: We expect that the minister will increase budget allocations significantly.
He is bound to be very thrifty in allocating resources.
We don’t expect much funding from the government into agriculture because it is now being funded by the private sector. More resources might go into mining and energy.
The minister will have a deliberate strategy to improve horticulture to boost exports.