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Mthuli Ncube warned against subsidies

by Staff reporter
11 Aug 2019 at 11:29hrs | Views
The government's move to subsidise transport services and agriculture will complicate efforts to extricate the economy from a myriad of challenges, analysts have warned.

Finance minister Mthuli Ncube in his supplementary budget presented on August 1 allocated $2,8 billion to the controversial command agriculture programme.

The government is also bankrolling a mass transportation system, which has seen the state- owned Zupco importing hundreds of buses and maintaining a 50 cents fare for urban routes.

Kipson Gundani, a prominent economist, said subsidies would not help solve the multifaceted problems facing the economy that include electricity and fuel shortages.

"Subsidies especially on energy and transport are going to be troublesome," he said. "Apart from the fiscal burden, we will continue to experience interrupted supply of energy and a mediocre public transport system.

"In any case, in the absence of external budgetary support, the subsidies have to be financed by local resources, so in real effect, citizens are paying for their own subsidies, hence the net effect is zero plus subsidy-related distortions."

Gundani said although the government had maintained subsidies targeting the agriculture sector, there was nothing to show for the billions given to farmers.

The United Nations last week launched a US$331,5 million appeal to help feed 5,5 million Zimbabweans facing starvation until March next year, despite the fact that government spent $3 billion on command agriculture.

"Traditionally, the government has always subsidised agriculture yet the country remains stuck in hunger and food inadequacy," Gundani said.

"Agriculture subsidies can be very impactful if they are correctly targeted to those with ability for higher yields; otherwise it becomes a waste and cost-inefficient.

"I hold the strong view that putting a subsidy at the market level far outweighs subsidising inputs."

Ncube last year introduced the Transitional Stabilisation Programme (TSP) that was meant to see the government moving away from subsidies.

The TSP promised initiatives to drive sectoral growth in the productive sectors of agriculture, mining and manufacturing.

Ncube said the growth would be underpinned by market-driven policies towards support for value addition and beneficiation, reducing the need for predominantly subsidy-oriented interventions.

Zimbabwe National Chamber of Commerce CEO Chris Mugaga said the trimming of subsidies was not enough as this would jeopardise the economy.

"He (Ncube) tried to trim the subsidies, but I think he was compromised. Given the pressure we have on the revenue side, he needs to trim the subsidies more.
It was not enough," he said.

"He was caught in between the hard rock and deep blue ocean.

"You must understand that the budget is a political statement presented to politicians.

"He should expedite the reforms of state enterprises. If he does not do that now, thats where he will be churning out most of the subsidies.

"His 2020 budget must focus on reforming the state enterprises."

Prosper Chitambara, a Harare-based economist said subsidies crippled the country's production capacity and widened the budget deficit.

"My major challenge is that they are not targeted on the productive sectors," he said.

"Even when we look at the agriculture sector, there is nothing to show from it.

"Every person receiving a subsidy must have something to show for that money.

"The most effective subsidy is improving rural infrastructure by investing in irrigation, dam construction and allow well-meaning farmers to do the business.

"The implications of subsidies is that it first it destroys production capacity and secondly it increases the budget deficit and forces government to increase taxes to pay for them."

Treasury increased this year's budget to $18,6 billion against expected revenue of $14,1 billion, leaving a budget deficit of $4,5 billion

Source - the standard