TAURAI MANGUDHLA
BUSINESS has warned Finance Minister Mthuli Ncube against unnecessary creation of money and undermining the mono currency as it will have serious ramifications on the economy.
In its submissions ahead of the 2020 National Budget presentation next week, business warned Ncube against piling more misery on citizens through taxation and interfering with the exchange rate.
Policy sequencing is key as government should raise revenue first before any expenditure to avoid creating money which will destabilise all markets in the economy causing run away exchange rate and inflation, Zimbabwe’s largest industry lobby group, the Confederation of Zimbabwe Industries (CZI), said in a Budget Consultation Input document.
“Money creation outside of statutory provisions must never be an option,” CZI said. Money creation increases as a result of RBZ overdraft to the government, buybacks or discounting of Treasury Bills by the Reserve Bank, payouts to Treasury Bills maturities, RBZ activities particularly the procurement of gold and the fuel subsidy as well as financing agriculture and the repayment of private sector foreign debt incurred at 1:1 which stands at US$1.2bn. The legacy debt, CZI said, was spiralling out of control.
“As the foreign exchange rate continues to run, the ZWL$ needed to source foreign currency for this debt continues to rise and is equivalent to about ZWL$18bn, at the current interbank rate of ZWL15:USD1,” it said.
The industry body said Ncube should prioritise fiscal consolidation to reduce the budget deficit and civil service rationalisation.
“The fiscal authorities should maintain fiscal discipline so that the economy does not suffer challenges of fiscal slippages. Government expenditure should be contained within sustainable levels without recourse to Central Bank overdraft facility and unbudgeted expenditures,” CZI said.
Austerity measures, CZI said, should apply to all economic agents, as the current budget applied austerity on citizens only, with vicious effects on aggregate demand and industrial productivity. According to the CZI, there is need to instil market confidence through policy consistency and accountability while confusion around currency should be put to rest with deliberate efforts to support the mono currency regime needed on the part of government.
“All government departments and agencies should demonstrate commitment to the mono currency regime by levying all statutory obligations in ZWL. Government is widening the deficit in accountability, confidence and trust by allowing its agencies to go into a re-dollarisation mode. This includes RBZ, ZIMRA, ZEDTC who are honouring their obligations as well as charging some fees and taxes in US$, instead of RTGS dollar,” CZI said.
The business body wants the 2 percent intermediated money transfer tax (IMTT) to be treated as a business expense. It said the 2 percent IMTT has become a cost for business as it is levied at every stage of the value chain.
“The law does not regard this tax as a business expense. Which means that when companies calculate their taxable income they need to add back any money spent paying this tax,” the body said adding that it is an additional tax and therefore must be treated as part payment of corporate tax.
The 2 percent tax was introduced by Ncube last year to raise additional revenue to meet the economy’s growing needs. Zimbabwe is currently suffering from foreign currency shortages due to deindustrialisation, shortages of foreign currency, rising inflation and shortages of electricity. This has left the private sector in the intensive care unit.
CZI said it wants “a Fiscal Policy that boosts aggregate demand in the economy” and is inclusive and facilitates private sector led economic growth. The Zimbabwe National Chamber of Commerce (ZNCC) also insists the most urgent task for the National Budget is to address inflation.
Related to inflation, the body said there is need for Zimstat to consider reviewing the inflation basket and factor in producer price index (PPI), consumer Price index (CPI) and consumer price index excluding mortgage costs (CPIX). According to the ZNCC’s Budget submissions, the RBZ’s lending capacity should be limited to only 4 percent of revenue while all quasi fiscal activities should be banned.
ZNCC said there is need to improve on fuel and electricity availability and pricing given that stable prices and availability are key for planning purposes.
“Digitisation is the new direction for our industry, there is need to embrace AI, robotics, Cloud Computing and other facets of digitalisation, the 2020 budget must recognise this need through allocating about 0,5 percent of total revenue towards developing the industry 4.0 programme,” ZNCC said.
“We had too many SIs and it’s vital for the state to stop recklessly issuing SI as a means of changing economic behaviour, the solution lies in policy consistency which comes as a result of well researched policy interventions. In the same vein, Government has been too slow to act on clear threats to economic revival, the exchange rate parity is a clear example, same with command agriculture funding and now the IMT 2 percent is a threat to business revival,” ZNCC added.
The ZNCC said there is need for an efficient interbank market for the 2020 policy to be effective given that market controls have never worked in this economy. A free market approach, ZNCC said, should be promoted though it should be sensitive to protect the vulnerable members of the society by ensuring provision of adequate social safety nets and job creation.
“We recommend that annual allocation to infrastructure development projects starting with the 2020 National Budget (Transport facilities, Energy, Water and Sanitation, Housing) should be increased to at least 3 percent of GDP given that Zimbabwe allocates around 1percent of GDP annually towards infrastructure projects while other countries in the region allocate as much as 7percent of their GDP annually towards infrastructure,” it said.
The insurance industry on the other hand is calling for government to allow US-based products while miners and tobacco farmers want the foreign currency retention threshold reviewed. Economist, Persistence Gwanyanya, said the economy should be private sector led as government has no resources. “It is constrained and we need private players to invest,” he said.
Gwanyanya said, currently at 6 percent, the investment to GDP ratio is low and should be grown to 30 percent. He said confidence should be achieved given its huge cost to the economy.
“In terms of currency stability, the primary focus was to get fiscal balance to stabilise currency, but it remained unstable because of the issue of confidence…you cannot stabilise a currency when the fundamentals are not right.”
The call by industry and economists comes as Ncube promised more tax rebates and cuts in the budget.
