Mthuli Ncube lines up TBs to fund deficit

GOVERNMENT is set to float Treasury Bills (TBs) to finance the 2021 budget deficit, Finance minister Mthuli Ncube said last week.

Last week on Thursday, the minister unveiled a ZW$421,6 billion (about US$5,1 billion) 2021 national budget.

He said revenues for the period were projected at ZW$390,8 billion (about US$4,8 billion), which translates to a ZW$30,8 billion deficit, or about US$376 million.

"A budget deficit of ZW$30,8 billion (-1,3% of gross domestic product) is targeted in 2021, a slight increase from -0,5% of GDP anticipated in 2020," Ncube said.

"The targeted fiscal deficit is also in line with the fiscal consolidation stance which strictly limits the fiscal targeted deficit to below 2% of GDP throughout the National Development Strategy 1 period. In terms of financing, the entire deficit will be met through the domestic market."

He said TBs totalling ZW$38,5 million (about US$475 000) will be issued throughout 2021, in addition to bonds to be rolled out from the second quarter, with maturities ranging between two and 10 years.

"Government efforts are being complemented by development partners, notwithstanding their support being channelled outside the budget. Their support is directed at various government planned projects which, ordinarily would have been funded through the budget," the minister said.

"The assistance will, however, allow implementation of a number of projects and programmes in sectors of infrastructure, social services delivery, capacity building and governance, among others. However, government in conjunction with respective partners will strengthen monitoring and evaluation of projects and programmes being implemented to ensure their efficiency and effectiveness."

Economists have argued that if government increases its domestic debt, it crowds out the private sector.

Companies have been seeking cheap funding to help them return to normal production.

Ncube had indicated last year that government will not crowd out private firms.

A budget deficit of ZW$4,9 billion (US$60 million) is expected at the end of this year, before further declining in 2021.

The minister said the improved deficit in 2021 will mark the beginning of strategies that will help government build essential buffers for unforeseen exogenous shocks.

"Deficits turned into surpluses or small deficits below 3% of GDP Sadc threshold since January 2019. Cumulative surplus of ZW$437 million (0,3% of GDP) by December 2019. Surplus of ZW$3,8 billion (US$46 million) for the period January to September 2020, and a deficit for the year at about -0,5% of GDP," Ncube said.

"The surpluses serve as a buffer for shocks, such as the impact of Cyclone Idai, drought and Covid-19 pandemic. Surpluses are also supporting social services delivery, social protection and infrastructure."

He said the country's current account remained in a surplus position, with preliminary estimates, showing it improved from US$319,9 million in the first nine months of 2019 to a surplus of US$938,9 million during the same period in 2020.

The strong external sector position was spurred by merchandise exports, which increased by 11% from US$3,2 billion in 2019 to US$3,5 billion for the first nine months of 2020.

Export performance was largely driven by gains in platinum group metals exports amid improved palladium and rhodium prices.

"Most commodity prices (nickel, platinum, copper, chrome, coal and cotton) except for gold and rhodium have fallen amid weaker global demand occasioned by the Covid-19 pandemic. Gold prices have benefited from safe haven demand amid global uncertainty," Ncube said.

"Logistical challenges due to lockdown measures domestically and in export markets also weighed down on exports. Merchandise imports are estimated to have contracted by 4,3% to US$3,2 billion in the first nine months of 2020 from US$3,3 billion for the same period in 2019."