Finance Minister Mthuli Ncube last week delivered a high sounding MidTerm Fiscal Policy which analysts say lacked any attempt to slow down an overheating economy characterised by severe economic downturn.
Economic activity has declined sharply and hyperinflation is ravaging the economy.
Month on month inflation skyrocketed to 32% in June from 15.23% in May while the annual inflation rate stood at 737% from 786% in May.
And there is evidence that the economy will likely shrink further this year, according to analysts.
At the crux of Ncube’s policy review statement, he did not unveil a supplementary budget saying the government was spending within its 2020 Budget estimated at ZWL$63.6bn.
Revenues are expected to hit ZWL$58.6bn.
But, Ncube piled pressure on the taxpayer.
Despite pronouncements in the past two years, the government has been hesitant to follow its words into action, resulting in the failure to either reform loss-making State entities or sell them to the private sector.
It means Ncube failed to relieve the fiscus of the burden of perennial bailouts to State entities through his policy.
The Zimbabwe dollar is on a free fall on the official market. This week, ZWL$72 is required to buy US$1 at the official foreign currency market, meaning it has lost 26% of its value in one month. In June, the Zimbabwe dollar was trading at ZWL$57 to the greenback.
The Finance Minister predicts the economy to contract by 4.5%. The IMF and the World Bank, however, expects the economy to fall by more than 10% this year and a modest recovery next year.
Analysts, however, say the economic prospects remain fraught with uncertainty.
The controversial 2% tax, which started all the deep troubles the population has seen since October 2018, was extended to transactions in foreign currency.
There have been amendments to the 2% intermediated money transfer tax (IMTT) tax thresholds and introduction of IMTT on Nostro foreign currency account transfers, with effect from August 1, 2020.
Also, the tax free threshold will increase from ZWL$100 to ZWL$300 and the US$ tax free threshold has been set at US$5.
Maximum IMTT reviewed from ZWL$25 000 to ZWL$50 000 for transactions exceeding ZWL$2,500,000 and the IMTT on US$ amounts, the maximum has been set at US$2,000 for transactions exceeding US$100,000.
There was also revision of PAYE tax tables effective August 1, 2020.
Tax free bonus was raised from ZWL$2,000 to ZWL$5,000. Tax bands will now begin at ZWL$5,001 and end at ZWL$. The highest marginal tax rate of 40% will apply from August 1, 2020.
Mining royalties continue to be collectable in foreign currency to the extent the amounts from which they are withheld are foreign currency amounts.
Economist John Robertson told Business Times that the policy was unlikely to resolve the country’s multi-layered economic crisis which has been worsened by the Covid-19 pandemic.
Consequently, Zimbabwe has fallen from its position as one of Africa’s wealthiest nations, to become one of the continent’s poorest.
Now, it can only offer formal jobs to very few people.
Apart from this, Zimbabwe now has additional problems caused by further disruptions to already damaged productive capacity.
This, Robertson said, has affected earnings in the formal sector and it has reduced the incomes that can be earned in the informal sector even more.
“At the beginning of this year, Zimbabwe was already struggling with inadequate food supplies, high inflation, debts that could not be paid, inefficient health, power, water, transport, municipal and government services, little access to domestic credit and no access to foreign loans, or international support,” Robertson said yesterday.
“The Mid-Term Budget makes very little reference to the personal earnings part of these problems and its references to infrastructural development do assure us of more electricity, better roads and more reliable water starting some years from now, but nothing that will help us survive the difficulties we are experiencing right now.
“The lock-down is being tightened, the country is no better positioned to attract investors, the promised trade surplus will depend upon the country importing less and the budget surplus will depend upon government spending less on running the country so that it can manage the higher wages now being paid to public sector workers.
“These measures are not resolving Zimbabwe’s economic crisis; they are only resolving issues affecting government employees.”
Independent financial and economic analyst, Paddington Masamha said the government had long committed to resolving fundamental economic and governance reforms but nothing has been done as such issues are still unresolved.
He said there is no political will to stabilise the economy.
“It’s not that we do not know what needs to be done; but there is no political will to change the status quo,” Masamha told Business Times.
“If you read through the Transitional Stabilisation Plan, 2019 and 2020 budget; there are certain fundamental economic, political and governance reforms that the government has been committing to resolve since 2018; however these commitments have generally remained as verbal commitments and no implementation has been done.
The April 2, 2020 letter by Mthuli to the IMF has fundamental issues that the government has been committing to.
“Zim is an agro-based economy. As such the major linchpin to economic growth is usually agriculture output. So here are issues to look at. Did we do well with the winter season?
Are we prepared for the summer season?”
Masamha said the manufacturing sector’s capacity utilisation will even dwindle further due to the lockdowns. Government, he said, failed to respond to the COVID-19 pandemic.
“Covid-19 is an exogenous factor that our government has failed to accurately respond to simply because the economy is debt distressed, the health sector itself is exacerbated with the myriad of challenges, the economy is poverty-stricken and there is also need to deal with other climatic shocks. As such, Covid-19 simply is adding salt to a wound.”
Masamha added: “The economy’s main brain tumor however is systemic corruption. Remember the fight against corruption was one of the major thematic issues but just look at how endemic the cancer has become.
“…..expecting job creation is rather being over-ambitious.
Instead we are realising corporate downsizing and retrenchments. Government can’t even save the jobs of the already employed individuals and we dream of creating new jobs in 2020; that’s just unrealistic at this stage.
“Governments rescue package should have been adopted on the concept of too big to fail but alas we do not know which corporates benefited from the Covid-19 working capital support.
The maximum he [Mthuli Ncube] can do is to stabilise the economy not grow it.”