What to expect from the 2020 mid-term fiscal review


“Turning and turning in the widening gyre, the falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is
loosed upon the world”. Those are opening verses of “The Second Coming” by Irish poet William Butler Yeats (1865-1939).

The Second Coming is one of Yeats’s most famous and anthologised poems and was written in 1919 in the aftermath of the First World War.

Interestingly, the poem is also connected to the 1918–1919 flu pandemic and speaks to chaos or instability in the form of conflict as well as a virus outbreak.

Finance Minister Mthuli Ncube will present the 2020 Midterm Fiscal Review on the 16th of July 2020 in an environment where it has turned out that the
only stable thing in the economy has been the instability. Covid-19 has been the major risk factor in addition to a plethora of country-specific headwinds.

Statutory instruments, directives, and controls have come and gone. Bans and suspensions have become the order of the day and doing business in Zimbabwe has become a tough contest for the faint ones.

That said, it would be tantamount to witchcraft for anyone to expect
Professor Mthuli Ncube to perform any magic with his Mid-term Fiscal Review especially when the following monetary issues still remain unresolved; I. The currency question. This remains a major area of concern for ordinary citizens and businesses.

Will the budget even be presented in US dollars or Zimbabwe dollars? There appears to be some form of a paradox here because the government has allowed transactions to happen in foreign currency, approved civil servants USD allowances and would also want to collect revenues (tax) in hard currency yet the ZWL Project continues; and II. The inflation problem. While this is the RBZ Governor’s job and is also related to the currency issue, concerns are on how the country will deal with inflationary pressures going forward.

Latest inflation numbers are showing triple-digit year on year inflation of 737.26%.

The “theoretical target” has been to tame inflation of levels of about 3.0% -7.0% in line with the SADC benchmark.

Overall, what is clear is that ZWL numbers do not make much sense anymore. The official exchange rate has moved from USD1: ZWL25
to USD1: ZWL68 as per the new foreign currency auction system and the economy has unofficially dollarised. Morgan & Co Research has detailed its expectations of the 2020 Mid-term Fiscal Review below; ·

A Budget Deficit. We expect National Treasury to record a budget deficit as more expenditure is directed towards Covid-19 relief (the ZWL18.0billion Stimulus Package).

Further, more funds will have to be pooled to support efforts to curb the virus. National Treasury is severely constrained as the country has not yet fully recovered from other shocks such and the drought and Cyclone Idai.
· More re-current expenditure in relation to capex.

Another key dynamic is that there is an increased risk of social unrest in the country. This continues to pressure the government to increase expenditure on recurrent items such as civil servant salaries.

Given that donor support, credit lines and FDI flows have been constrained, the government has had to rely on National Treasury to fund the gaps. The consequence is that the country is expected to remain chronically deindustrialised on the back of limited investment in capex.

A downward review of GDP growth forecasts. We expect the Ministry of Finance to come up with more realistic GDP growth expectations for 2020 and 2021.

The Economist Intelligent Unit has already published its new estimates showing that real GDP will contract 15.5% in 2020 on the back of foreign currency shortages, limited investment, company shutdowns, soaring inflation, and Covid-19 lockdown measures; and · Trade Surplus. We opine that the budget will most likely show a trade surplus that is the result of imports falling faster than exports.

While the Covid-19 pandemic has closed many borders, Zimbabwe continued to drive exports into its largest export market, South Africa. Imports, however, will be significantly lower given the shortages of foreign currency and inefficient interbank system that prevailed during the early
months of the year.

Overall, the Finance Minister will have to focus on critical issues on how citizens and businesses will be cushioned through taxation. In addition, strategies on how jobs will be created post-Covid-19 will also be critical.

The informal sector in Zimbabwe also remains largely closed and poverty levels have increased. Other areas that need attention will be progress on any international engagement efforts as it is becoming clearer that Zimbabwe cannot do it alone. Finally, and most importantly strategies on how Zimbabwe will again re-position itself as a stable investment destination will be critical. We should also expect an update on when the suspension of trading on the Zimbabwe Stock Exchange (ZSE) will be lifted.

Batanai Matsika is Head of Research – Morgan & Co +263 78 358 4745. He can be contacted on

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