Ncube does more tinkering with policy as H1 budget fails to inspire



Expectedly, there were no major policy shocks or particularly surprising figures on the mid-term budget presented last week by Finance and Economic Development Minister Mthuli Ncube. 

Ncube, who is still in his first year as minister, tinkered around the main issue but fiddled with tax issues giving relief in certain areas and raising revenue on some. For the average employed person, the most relevant development should be that the income tax brackets were reviewed to ZWL$700 from $350.

However, as evidenced by the more or less equal upward revisions to the projected revenues and expenditures there is no real moderation of the public tax burden. Additionally, the inflationary impact of the fuel excise duty and electricity tariff upward revisions are going to add to the strain on disposable income for the average person.

For the economy as a whole, while the current account and budget performances are in line with the stabilisation objectives behind the TSP, the presentation did not delve deep enough into stimulating recovery and growth. According to Ncube the revised 2019 GDP growth is expected to be negative and worse than the forecasted -2.1%, however he did not offer any detailed message on the turnaround strategy. Even on the stabilisation measures, doubts linger on the sustainability of the current account surplus, with pressure on the balance of payments bound to grow under the declining productivity. Meanwhile, the approach on inflation management appears to rest on sustained money supply growth restriction against a budget deficit that’s been revised upwards to $4.5 billion. Given the current squeeze on liquidity in the economy and the reluctance of foreign creditors it is difficult to see the government not resorting to money creation to finance the deficit and subsequently feeding into inflation.

For the strategies undertaken in response to the declining GDP, the removal of the indigenisation policy is a grand gesture but it is policy administration that is often cited as the obstacle to more investment in the mining sector not ownership thresholds. The other measure taken, dumping an additional $2.95 billion into agriculture contradicts with statements made earlier that the sector would be weaned off government support with the goal of increasing private investment. Arguably, those funds could be better used in financing some of the stalled infrastructure projects while less costly initiatives and policy reforms could be made by the government to encourage private investment in the agriculture sector.

This seems more rational than the current opposite approach of seeking private sector funding for infrastructure projects while pouring public funds into a sector that could be operated more efficiently under private investment. More so when the urgent need to revamp infrastructure has been cited regularly across industries, and with the rise in electricity and fuel cost pressing down margins, improved infrastructure could be key in the competitiveness of local production if export led growth remains the government’s goal.

Ultimately, while Ncube’s update was informative, it fell short on inspiration and providing clear message on where the economy is going. The signalling behind arresting the twin the twin deficits falls on deaf ears when the positive impact is yet to be felt by the public. Without any tangible or observable results from the stabilisation policies aside from the declining quality of life, Ncube has to inspire confidence through a solid and realistic vision. This means there has to be more movement on the ground and more substance behind policy, with the full weight of the government behind reforms. Until there is, the economic policy will continue face scepticism and cynicism from uninspired public.

Summary of the mid-term budget statement

Monthly revenue collections for the first six months performed above targets by an average of $139.9 million to give cumulative revenues of $4.99 billion, against a target of $4.15 billion, giving a positive variance 20.2%. Government spending for the period January to June 2019 was $4.2 billion against a target of $3.7 billion, which is $532 million over-expenditure (15%). For the half year period, a budget surplus of $803.6 million was realized.

The pressure on expenditure stemmed in part from an interim cushioning allowance of $63 million being awarded to employees as well as a cost of living allowance of $400 million and a review of pension and related benefits costing $133 million. Over and above the reviews in the first half, the sustained inflationary pressures led Government to award a once off cushioning allowance in July of $143 million.

Subsequently this saw the release of a supplementary budget with 51% upward revision of revenue to $14.1 billion, expenditures to $18.6 billion and the projected deficit rising to $4.5 billion from a previous $2.9 billion.

The revised budget proposes to accommodate all the increased wage commitments which moved employment cost budget allocation from $4.1 billion to $5.9 billion.

Meanwhile the original capital budget will require additional funding amounting to $5.034 billion, targeting support to infrastructure ($1.345 billion), Agriculture ($2.950 billion), and other capital items ($739 million). This sums up to a total infrastructure budget of $2.5 billion, constituting 35.4% of the total capital development budget

 The current account, for the first time since the adoption of the multi-currency regime in 2009, registered a surplus in the first quarter of 2019. A surplus of US$196 million was registered in the first quarter of 2019 compared to a deficit of US$491 for the same period in 2018.

Away from the disclosure of figures and statistics, Ncube also revealed a number of policy changes centered around price rationalization. He raised the electricity tariff while in other developments related to energy, lithium-ion solar batteries will be acquired duty free with effect from 5 August 2019. Additionally, live animals, fruit exports and raw materials used in the production of soaps and cosmetic products were added to VAT exempt list.

Ncube also proposed to revise the ad valorem excise duty to 45% and 40% per liter for petrol and diesel respectively.  

For electronic transactions the tax-free threshold will be increased from $10 to $20 and the maximum tax payable per transaction by corporates from the current $10 000 to $15 000 for transactions with value exceeding $750 000.

The government also made a series of revisions a number fees and service charges with the intent of offsetting the inflationary impact on real value, although the extent of the increases falls short of the exchange rate depreciation.