Finance minister Mthuli Ncube has said austerity measures adopted by government to cap expenditure and free up funds for capital projects are expected to ease the burden on the taxpayer next year.
Zimbabwe which is currently operating on limited fiscal space and no budgetary support adopted a cocktail of belt-tightening measures and taxes that have largely eaten into consumers spending power.
Under the new economic blueprint, the Transitional Stabilisation (TSP), government undertook a raft of reforms which seek to attract foreign direct investment, boost domestic production and contain expenditure. Official figures show that wages and recurrent expenditure currently account for over 90 percent of government revenue.
The TSP was launched in October last year as an economic blueprint to stimulate growth after President Emmerson Mnangagwa was elected into office last year. The economic plan is also seen as a precursor to government’s aspiration of creating a middle income economy by 2030.
In his address at the ZITF international business conference in Bulawayo yesterday, Ncube said austerity will be a thing of the past by next year.
“Next year we will be starting entering the prosperity period because my understanding is that it can only be austerity for a year and you cannot have austerity for three years that’s not fair. The beginning of next it will be less and less austerity,” Ncube said.
Austerity measures have seen government cutting expenditure and reviewing tax heads such as the intermediated transfer tax and excise duty on fuel to raise more revenue to meet government’s growing obligations.
Ncube said government was solvent with the Treasury recording an average of ZWL$100m monthly surplus, a figure critics say could be too little given the weakening of local currency against major currencies. Treasury is targeting above ZWL$200m per month.
The finance minister said government ensure that the interbank market operates efficiently to reduce market distortions. Premiums on the formal market are currently lagging behind parallel market rates which are nearly approaching the 500 percent mark.
Ncube said treasury was not injecting new money into the economy, blaming speculative behaviour for the movements on the informal market.
“Money supply is not growing on the market and my question is where the pressure for foreign currency is coming from. That has mainly been driven by speculation in the market and I urge private sector to utilise the interbank market,” said Ncube.
Mthuli said efforts are underway to reform state enterprises so that their contribution to GDP is enhanced.
Ncube said despite the headwinds the domestic economy remains on a growth trajectory adding that government has set a per capita income target of at least $4,500 by 2030. The figure is currently below $1,000.
This implies growth in nominal GDP from 2018 levels around ZWL$25bn to around ZWL$65bn by 2030.
Ncube said the private sector was expected to stimulate growth with Zimbabwe assuming the position of a factory to the world.
Ncube said payments towards clearance of domestic debt amounted to ZWL$1,62bn in 2018. The domestic debt topped ZWL$9,6bn in September last year as government borrowed from the domestic market to finance the budget deficit. Government has been borrowing from the domestic market through the issuance of Treasury Bills, a move analysts say was crowding out the private sector as banks turns to the securities instead of giving loans.
In January and February 2019 payments towards domestic debt amounted to ZWL$195m, Ncube said.