PHILLIMON MHLANGA
FINANCE Minister Mthuli Ncube will today present the 2020 National Budget expected to extricate the ailing economy from rolling electricity shortages, hyperinflation and rampant company closures. Zimbabwe’s frail economy is also being ravaged by high unemployment rate, plunging production levels, healthcare sector crisis, fuel shortages, skyrocketing prices, and acute shortages of foreign currency.
Although nothing matters more than getting the economy back on its feet, today’s budget will be judged on how it deals with state entities, which have become symbolic of all government’s failures. Several analysts said the finance minister should change the narrative of state entities and make hard decisions. He should reveal a credible plan to overhaul state enterprises to ensure they become financially selfsustaining. A repeat of fiscal slippage will worsen public finances, as fiscal deterioration has been caused mostly by the economy’s failure to grow. It is expected to contract further by a negative 7% this year.
While the government projects a 4.6% growth in 2020, the IMF and the World Bank say growth will be modest, at slightly more than 2%. The country’s situation has been compound by the problems in state enterprises where entities, supposed to support growth, have become a drag on the economy instead. This means the more the government does not take hard choices to solve problems in the state enterprises sector, the more problems build up in the sector.
Those hard choices include policy decisions on how to change the business models of state entities to reflect the fact that the country does not have the resources to sustain the sector in the way it is currently structured, with the state as the sole shareholder. The idea is to relieve the fiscus from carrying the burden of perennial bailouts because the fiscus is already burdened with debt. This suggests the need to expedite the sale of state entities.
But who would want them in their current state? So far, there is only a noticeable movement at the POSB, where a financial advisor has been engaged to cause its privatisation. In other state enterprises, there has been deafening silence in terms of privatisation implementation. Economists and other analysts told Business Times at the Institute of Chartered Accountants of Zimbabwe (ICAZ) summer school held in the capital last week that headwinds were strong, leaving the country literally on its knees and expecting the Treasury boss to announce sweeping changes in his 2020 National Budget.
They said the budget should be pro-poor, pro-production, with more focus on stimulating demand and economic activity. Another major battle is how to deal with the tax regime, which many believe, fuels inflation. The 2% tax on electronic transaction, which has been piling misery on citizens, should be scrapped as it is hurting the economy, analysts said, adding that Ncube should pursue a tax reduction drive that would leave more money in the pockets of tax players.
In June, the government re-introduced the country’s own currency, ending a 10- year multi-currency system. But the Zim dollar has seen its value plunging to about 20 to the USD on the black market, from the initial 1:2.5 to the USD in February. This has devastated savings, salaries and hope. The plunge has also threatened the viability of industries due to demand challenges created by the lack of disposable incomes.
Thus, Ncube’s budget will be judged by how it attracts fresh investments, rejuvenate industries and reinvigorate the ailing economy. His critics say Ncube’s reputation for prudence is now questionable.
“We are not what we think we are. If anything, this budget should be a pro-poor economic plan. Any fiction is not going to work,” said economist Nigel Chanakira at the ICAZ meeting. He said a year ago many thought the team comprising Ncube, central bank chief John Mangudya, Treasury permanent secretary George Guvamatanga and Mangudya’s deputy Kupukile Mlambo would bring international funding, something the economy failed to do in two decades partly due to the economic sanctions imposed by Western countries.
“Multilateral funding,” Chanakira said, “was what Ncube was seeking. But it has not worked. We have gone off the rails in terms of the economic programme Mthuli put in place. The chickens have come home to roost. We seem to have blown that opportunity.”
Chanakira called for modest models, saying Zimbabwe should forget about “mega deals” for a while. Tafadzwa Bandama, an economist with the Confederation of Zimbabwe Industries, said taxes went up but government expenditure did not decline.
“There is instability in the goods, money forex and labour markets where there is dwindling income. The budget should stabilise these markets,” Bandama said. “There is also need for efficient management, policy consistency and credibility. We demand stability in all these markets and public finance management. She said: “We expect a policy that supports local content in the economy.”
The government should enhance competitiveness of exports through tax incentives. The current account is contracting because the economy is contracting. There is a need to improve key economic enablers such as electricity and fuel. Right now, the economy is sitting on a time bomb because it is using fuel (due to rolling blackouts) to power production.
“We want the fiscus to boost aggregate demand. We want a tax policy that boost production, not finance recurrent expenditure. Christopher Mugaga, the CEO of the Zimbabwe National Chamber of Commerce, said there was no independence of institutions.
“You can’t run an economy like that. There is too much government hand,” he said. “The truth of the matter is we are re-dollarising, we are only delaying it. We are printing money and it has to stop. Another is the debt management sins the government has committed. There is need to sort this one out,” Mugaga added.
There is also intense pressure bubbling up from a number of government services, including health care after years of underfunding. The budget will be the first since the economy ditched the multicurrency system in June this year. On the monetary front, analysts said the re-introduced Zimbabwe dollar was not working because people don’t know what the price will be tomorrow. Chartered accountant, Duduzile Nyirongo, said “no matter how much money the government prints, people will run away from it.”
This means Ncube should unveil a raft of incentives to stimulate investment and unlock employment opportunities. “Our economy remains under siege,” said Itai Chirume, an executive director at MMC Capital.
“There is need to decisively make a commitment to legacy debts. As long as we have an unresolved situation regarding legacy debts, we will not be able to get new investment.” He called for the removal of restrictions on fungible shares.
“An issue of property rights emerges,” Chirume said. “It deprives them the right to dispose. These are some of the sins committed by the authorities but they are not prepared to carry the cross. The environment does not reward the assumption of risk. We are now aiming to minimise the carnage by being satisfied with a return to zero. The budget must deal with the investment environment,” Chirume added.
The government is currently battling underfunding, and Ncube recently appealed to the IMF to “have some flexibility” to fund the government. Zimbabwe has cleared its IMF debt arrears but still owes other multilateral and bilateral financiers.
The country’s fiscal space remains severely constrained due to poor performance of revenue inflows against the background of rising recurrent expenditure and a shrinking tax base. The economy is saddled with a high debt overhang with an estimated debt stock of US$18bn as at June 2019. Ncube is standing at the crossroads. Which way will he take?
