2018 National Budget Transformative – An Analysis

The 2018 National Budget presented by Finance and Economic Development minister, Patrick Chinamasa has been described as transformative, following a number of policy measures that the government has been resisting to implement for some time. The new dispensation seem to have ushered a real shift in mind-set and government position as Chinamasa made positive announcement which brought in a new breath to the economy.

The 2018 budget has seen a significant shift from legislative behaviour to incentivising good behaviour. The structural reforms are key to the growth of the economy and are an important signal to the world about how serious Zimbabwe is. It focused on rebalancing the expenditure.

The target for GDP growth for 2018, have been set at 4,5% but the CZI president Sifelani Jabangwe told government and the business community that this is achievable and can be surpassed provided there is commitment, discipline and implementation. The real work is on implementation.

“The budget is transformative. The projected growth rate is achievable and can even be exceeded if we are better organised. The role of government is to create space and private sector is there to drive growth,” said Jabangwe.

But what where some of these major shifts

Efforts to reduce Budget deficit

Banc ABC Chief Economist, James Wadi said that Zimbabwe enjoyed rapid economic growth in the past and that double digit growth is still feasible in respect structuring, economic policy and political changes.

In the first nine months of the year, revenue growth was experienced but was out paced by expenditure, which then eroded the possible benefits from the revenue growth. The increase in expenditure increased the budget deficit and this is the major source of the economic imbalance in country. In 2016, the Government recorded a $900 million deficit which was financed through Treasury Bills (TBs). This year, a deficit of $1, 7 billion was incurred and was again financed by TBs.  

Wadi noted that the 2018 budget has gone to some way to try and address the issue of the deficit by focusing on cutting expenditure and putting targets to limit spending.

Chinamasa agreed that the budget deficit has been financed mostly through TBs as there were limited options, especially with the country being in isolation. On the other hand, he said, the commercial banks felt it was too risky to support local industry and production hence government used part of the money that created the deficit to fill the gap that banks were not prepared to fill.

Revenue generation constraints

In the past, about 30% of the revenue came from PAYE because the economy was growing and contributing to job creation. This revenue generated from PAYE has gone down to 18%. This reduction may be attributed to informalisation, noncompliance and general low performance of the economy.

There is need to move away from consumptive expenditure to local production for PAYE and company tax to grow, thereby increasing revenue generation.

Money Supply

RTGS balance had grown to around $2billion by early 2017. Previously it was growing gradually, but this growth in RTGS has become rapid. The danger is that the RTGS balance is not supported by real money, but is chasing the few available dollars, resulting in the parallel market for currency.

In 2010 liquid cash and nostro balances, notes and coins were high but dropped to 400 million by 2014 and slid further to $200million in 2017. This movement is demonstrated by the cash shortages in the market.

Further analysis shows that credit to private sector is not growing for the past two to three years, which means the economy is not growing. Government has been the major consumer of credit through its consumptive expenditure and this is not good for the economy.

Export performance

In 2010, the manufacturing sector generated $1 billion, and this has come down by about 50%, with manufacturing now generating only $500 million. Mining is contributing $2 billion as well as agriculture.

Imports

The economy is spending 20% of its foreign currency on fuel, and this is related. Food is about 10% of imports and although this is commendable, more can be done to bring this figure down.  

Local authorities and public enterprises

For Local authorities and Public enterprises, which are enablers of the economy, if they function and become more efficient, then the cost of doing business will come down. The budget has signalled the shift in how public enterprises will be treated with a strong call to restructure, commercialise, selling off or creation of joint ventures.

Land Tenure

The resolution of the land tenure issue in the appropriate way will translate land from a dead asset and holders can then use it to get credit and increase production. The Bankers Association of Zimbabwe president Charity Jinya said the banks were ready to accept 99 year leases as security and were waiting finalisation of the processes by the Cabinet.

Chinamasa encouraged firms in the agro processing sector to actively support value chains at farm level and the government would welcome suggestions and recommendations on tax incentives to encourage firms to take up the opportunity

Corruption

While government has made the right noises regarding corruption, it would do even more by using e-technology to reduce human interface in most processes there by reducing the temptations for corruption.

Infrastructure

Zimbabwe infrastructure development is lagging behind. However, the projects that are coming up, there must have a strong local content component to help stimulate growth, and these are the things that the Government has agreed to implement.

Restoration of international relations

The country has no access to offshore finance and for this reason Minister Chinamasa emphasised the need to normalise relations with those who control the globally financial system as well as for Zimbabwe to meet its financial obligations as part of restoring relations.

Indigenisation

This has been scrapped, foreign companies can come in and own 100% of their investment, except in the mining of platinum and diamond where 51%-49% still apply. In the reserved sector, those who were already operating will continue. CZI has called for a speedy reform of the Act to reflect the new position.

It was suggested that CZI with other private sector players should have an implementation matrix with specific growth targets which can be jointly reviewed periodically to address any challenges toward achieving the targets. There is also need to look at other key cost drivers with a view to address them especially the cost of fuel; electricity, water and labour.

CZI 2017 Budget Input

The Confederation of Zimbabwe Industries (CZI) has submitted its proposals to the national budget with several changes such as Removal of duty on industrial raw materials, enforcement of local procurement as well as urging the government on the deteriorating macroeconomic fundamentals causing loss of confidence in business and consumer relations.

CZI stated that government must restore strict cash budgeting framework, urging ministries from accruing liabilities unless there is available funding. Currently there is unavailable forex in the country leading to higher forex demand as credit lines are being cut due to non-payment of goods already imported, impacting the pricing.

CZI has went on to recommend that the Government overdraft with the RBZ be eliminated and replaced by appropriate instruments that formally define the Government’s debt to the banking sector in a planned manner to manage the liquidity. Government was urged to introduce a statutory cap on overdraft and for RBZ stop buying any Treasury Bills (TBs) or any other form of quasi-fiscal instruments. This was hugely contributing to the crowding out of productive sector, thereby affecting growth. Government expenditure has been predominantly consumptive.

Several issues need to be addressed such as restoring the confidence in economy, monetary imbalances between money in the RTGS account and underlying nostro. Last year the RTGS account stood about US$1.2 billion but is understood to have reached $2 billion by October. This is a growth of over 60% which has not been supported by 60% growth in production and this had not gone unnoticed in the market and both consumers and business.

To revive different sectors of the economy, CZI recommended government to increase local procurement. Existing procurement rules should be enforced and government should publish the value of government imports monthly.

Other inputs proposed by CZI include the establishment of an independent structure to handle tax appeals as it will positively portray the country’s image thereby attracting investors, removal of duty on raw materials to ensure industrial competitiveness as well as stimulation of agriculture production. 

© 2017 Confederation Of Zimbabwe Industries. All Rights Reserved.