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Mthuli Ncube faces uphill task

by Staff reporter
10 Jul 2020 at 07:21hrs | Views
FINANCE minister Mthuli Ncube, expected to present his mid-term budget statement next week, faces a daunting task to craft a cocktail of measures to stem the steepest economic decline in Zimbabwe since modern record-keeping began.

The budget presentation comes at a time Zimbabwe is in the throes of a deepening economic crisis characterised by a debilitating liquidity crunch, an acute foreign currency and fuel shortage, low capacity utilisation, dwindling foreign direct investment and runaway inflation which has galloped to nearly 800 %.

The ailing economy has been hard hit by the impact of the Covid-19 lockdown.

The Zimbabwe National Chamber of Commerce has projected that at least a quarter of the country's formal workforce will be rendered redundant with the tourism sector losing nearly 25% of its workforce.

Ncube presents the budget amid disgruntlement from restive civil servants who have indicated to the government that they will not negotiate a Zimbabwean dollar-based salary increment, given the local currency's rapid depreciation.

Health professionals at public hospitals have gone on strike to press for better working conditions.

This is despite government awarding a US$75 Covid-19 allowance to civil servants and US$30 to pensioners, which will, however, not be in the form of hard cash. Analysts say this has shown that the government cannot afford to dollarise as it has no access to reliable amounts of foreign

The small business sector in Zimbabwe, as in other developing countries has potential to be a conduit and a catalyst for sustainable development. However, despite such potential, the small business sector attracts limited funding attention from retail, institutional and multilateral investors.

In an effort to bridge the funding gap of SMEs, the country's first Alternative Trading Platform (ATP), Financial Securities Exchange (FINSEC), launched the Growth Enterprises Market (GEM) Portal. The GEM Portal is a dedicated online Portal designed for Small and Medium Enterprises (SMEs) in need of raising capital for retooling , increasing productivity, or to increase their product range or for expansion into diversified markets.

It is a simplified yet innovative use of technology for SMEs to apply for equity or debt financing, and be exposed to financiers and advisors. SMEs can apply through the GEM Portal to raise capital in an efficient, convenient and cost-effective manner that currency.

Efforts to contain the runaway parallel market exchange rate, which has been one of the main catalysts of inflation, has also proven unsuccessful since the government banned the multi-currency regime and made the Zimdollar the sole legal tender in June last year through Statutory Instrument 142 of 2019.

The parlous national purse has been worsened by unrestrained fiscal spending by government.

Now, the task ahead for Ncube is to devise measures to stabilise the rapidly imploding economy. He must curb consumptive subsidies that have been a major source of inflation.

The Finance minister will present the mid-term budget after international financial institutions (IFIs) recently rebuffed his pleas for financial assistance. Ncube told the IFIs that the economy will contract by between 15% to 20%, adding that the implosion could have adverse ramifications for the entire Southern Africa region.

Workers in both the public and private sectors are demanding United States dollarbased salaries despite the government's attempt to de-dollarise the economy.

Ncube is under pressure to placate disenchanted citizens whose incomes are being decimated by inflation at a time the prices of goods are skyrocketing. The government's desperate attempts to put a moratorium on prices of basic commodities in March flopped dismally. Frustrated citizens are planning a nationwide protest on July 31, piling the pressure on the government.

Ncube's attempts to contain the depreciating local unit which include suspending trading on the local bourse as well as outlawing the fungibility of Old Mutual, PPC and Seed Co counters as well as introducing a forex auction market have failed. The government has failed to tackle the corrupt cartels that are wreaking havoc on the economy and it remains to be seen whether Ncube will take the bull by the horns and present measures to halt the grouping that has been largely responsible for the rout of the local currency.

Economic analyst Brains Muchemwa yesterday told businessdigest that it is important for the fiscal authorities to implement reforms that eliminate the entire list of consumptive subsidies that have been a major source of inflation.

"While the general expectation is that of a supplementary budget which would be bigger than the original budget, it's important for fiscal authorities to implement reforms that eliminate a whole plethora of consumptive subsidies that have been the source of inflation.

While the Zimbabwean dollar has been an orphan for a long time, it's still important for the central government and quasigovernment institutions to stop accelerating its demise by pegging prices of goods and services in US dollars at the auction rate," he said.

Financial analyst George Nhepera said there was a need to deliver more on financial sector reforms, especially on the recently suspended Zimbabwe Stock Exchange, the yet-to-commence Victoria Falls Stock Exchange and price stability through currency reforms.

"In line with the ‘3Rs' for economic recovery from recession which are reform, recovery and relief the Minister of Finance now has a chance to remodel his budget in a manner that responds to current challenges," Nhepera said.

"Above all, let us have credible investment policies aimed at attracting investment capital from international investors who, in my view, still see us as an untapped emerging investment market in the region," he added.

Source - the independent