LIVINGSTONE MARUFU
The World Bank has warned the Zimbabwe government over high spending on subsidies, a move likely to trigger a huge gap in funding other critical sectors such as health and service delivery.
Zimbabwe, which has limited funding due to its failure to honour International Financial Institutions, is now relying on domestic financing through the issuance of the government commercial paper into the market to finance its activities.
This, the World Bank said, could trigger inflation as the figures were not backed by gold or strong currency.
“Reallocate spending from inefficient, distortive subsidies to targeted measures that limit the toll of the pandemic, provide social safety nets and food security, and prevent a learning crisis that risks undercutting long-term growth and productivity,” World Bank senior economist, Stella Ilieva said in the lender’s latest economic update on Zimbabwe.
“Adopted policies should take into account the country’s limited fiscal space and the significant financing required to arrest further deterioration of social service delivery.”
Ilieva said as Zimbabwe was currently facing tight public finances and limited recourse to external financing, the country will need to rely heavily on reallocating domestic resources to optimal public uses, mobilise humanitarian support to prevent increasing fragility and leverage private financing where possible to stimulate growth.
In its 2021 Mid-Term Budget submissions, the Confederation of Zimbabwe Industries (CZI) said the current macroeconomic stability can be attributed to the government’s fiscal consolidation, through managing expenditure, although it is still fragile.
CZI said the Mid-term budget review must come up with strategies to provide the stimulus package resources to the productive sectors without resorting to money creation.
“…unplanned subsidies must be avoided at all costs. Producer prices must be economically viable and at import parity so that the Treasury does not resort to subsidies. Producer prices that are at par with import parity prices will remove the need for subsidies in the agriculture sector,” CZI said.
The World Bank said significant financing will be required to restore service delivery to the levels of the recent past as the gap has widened sharply over the past two years.
The World Bank said in this regard, new approaches to working with the private sector and development partners are needed to leverage financing and skills and such approaches, coupled with a more responsive and accountable public sector, would enable a more rapid improvement in service delivery.
The latest economic analysis for the country says the Covid-19 pandemic and its impacts disrupted livelihoods, expanding the number of extremely poor citizens by 1.3m and increasing extreme poverty overall to 49% in 2020.
The pandemic further disrupted provision of basic public services in health, education and social protection, which were strained prior to the pandemic, affecting poor citizens the most
The pandemic also put pressure on strained public resources, the report notes, exacerbating implementation challenges, severely affecting service delivery in health, education and social protection.
In addition, the World Bank said supply-side challenges facing the health system—following a prolonged period of doctor strikes, reduced working hours for nurses and limited and slow access to personal protective equipment—initially contributed to a decline in the coverage and quality of essential health services.
The number of institutional maternal deaths increased by 29% in 2020 compared to 2018, while deliveries at home increased by 30%, the bank said.
