Treasury stance piles pressure on companies

STAFF WRITER

Zimbabwe’s corporate sector is feeling the squeeze after Finance Minister, Professor Mthuli Ncube’s mid-term budget review put state revenue collection ahead of growth incentives, entrenching a fiscal hard line that analysts warn will deepen operational strain across industries.

Instead of easing the pressure, Treasury reinforced aggressive tax measures and high regulatory costs, signalling no immediate relief for companies already contending with surging wages, volatile power supply and weakening consumer demand.

Analysts warned that the strategy, while shoring up state coffers, risks further suffocating the very businesses powering the economy.

“This leads us to believe that the status quo of high taxation and regulatory oversight will be maintained,” said research firm,  IH Securities.

“Informalisation will likely persist, and we will likely see sustained pressure on corporate earnings and asphyxiation on the bottom line.”

Corporate expectations ahead of budget review had been high, with many hoping for stimulus to offset inflationary shocks and eroding spending power.

Instead, the blueprint prioritised fiscal consolidation over growth, a move analysts say could weigh heavily on companies for the rest of the year.

Government revenues reached ZiG101.2 bn in the first five months of 2025, largely from “enhanced tax compliance” rather than broad-based economic expansion. Treasury has tightened VAT exemptions and introduced new levies, including a sugar tax that industry players say has “added another layer of costs” to already stretched balance sheets.

While Treasury’s 2025 growth forecast of 6% hinges on record gold prices, favourable La Niña weather and a stable ZiG, the domestic picture is more fragile: agriculture shrank 18.1% last year, informal businesses now account for 76.1% of all enterprises, and domestic demand remains muted.

Zimbabwe’s public debt stood at US$21.5 bn as of March 31, with 59% owed to foreign creditors.

A GDP rebasing to US$45.7 bn has cut the debt-to-GDP ratio to 46.5%, but analysts at FBC Securities cautioned the improvement was “cosmetic” given unresolved arrears and the continued freeze on concessional funding.

“Debt sustainability remains constrained by external arrears, which continue to block access to concessional financing,” FBC said.

Development partner inflows have also disappointed, with only US$148m received in the first half, prompting a 37.5% cut to the full-year projection.

Government spending hit ZiG98 bn in the same period, with public wages consuming 46.3% of expenditure.

Overshoots in sectors like transport, which absorbed 116% of its annual budget in six months — risk crowding out private investment.

The rollout of the ZiG currency has steadied inflation, averaging 0.5% monthly between February and June, while narrowing the parallel market premium to 20% from 136% in 2024.

But for boardrooms, the sense of unease is undiminished.

“The operating environment will remain to be desired for listed companies for the rest of the year due to high taxation, lofty regulatory costs, and erratic power supply,” IH warned.

For now, Zimbabwe’s firms must navigate an unforgiving policy environment, one where Treasury’s pursuit of revenue could prove costlier than the fiscal imbalances it seeks to fix.