Treasury to widen tax base, resume TB auctions

THE Government is set to intensify efforts to broaden Zimbabwe's tax base while resuming the issuance of Treasury Bills (TBs) and bonds through a competitive auction system as part of a broader strategy to strengthen public finances and improve debt sustainability.

The measures are contained in the 2027 Budget Strategy Paper presented to Parliament by Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube.

The strategy outlines Treasury's fiscal priorities under the National Development Strategy 2 (NDS2), with domestic resource mobilisation expected to play an increasingly important role in financing development programmes.

Treasury said the 2027 National Budget would focus on improving revenue productivity, widening the tax base and modernising tax administration.

"As the country expands implementation of the National Development Strategy 2, sustainable domestic resource mobilisation will remain central to financing Government priorities, accelerating inclusive economic growth and supporting the attainment of Vision 2030," Ncube said.

He said Government would continue implementing tax policy and revenue administration reforms aimed at broadening the tax base, rationalising tax expenditures, simplifying tax administration, strengthening tax governance and compliance, improving intergovernmental fiscal coordination and accelerating the digitisation of revenue collection systems.

Economist Malone Gwadu said the reforms reflected Government's long-term objective of bringing more economic activity into the formal tax system.

"Zimbabwe's economy has become largely informal and the Government has a strategic intention to deepen the reach of taxation into the informal sector while gradually encouraging formalisation," he said.

Gwadu said improving compliance rather than simply increasing tax rates would be critical to expanding Government revenue.

"The strategy speaks to the Government's policy direction of encouraging compliance and widening the tax net," he said.

"Rationalising the tax system also supports this objective by reducing compliance costs, while digitisation makes it easier for taxpayers to comply through digital platforms."

He said stronger intergovernmental fiscal coordination could also improve the efficiency of public spending by maximising value for money from tax revenues and strengthening administrative capacity.

On public debt, Treasury reaffirmed its commitment to restoring debt sustainability through prudent borrowing and continued fiscal discipline.

Ncube said the successful implementation of the 10-month Staff-Monitored Programme would be critical to the country's efforts to clear external debt arrears and unlock future financial support from bilateral and multilateral institutions.

He said Government would continue prioritising concessional financing for critical projects while restricting non-concessional borrowing to economically viable investments with demonstrable repayment capacity.

Treasury also pledged to keep fiscal deficits below 3% of gross domestic product, maintain its policy of avoiding central bank financing and limit the accumulation of domestic arrears owed to service providers.

In a significant development for Zimbabwe's domestic capital markets, Government will resume issuing Treasury Bills and bonds through competitive auctions after a period of administrative issuance.

"Considering the prevailing and projected macroeconomic stability associated with a single-digit inflation profile and a stable exchange rate, the Treasury will resume the issuance of Treasury Bills and bonds through the auction-based system, to encourage competitive price discovery and enhance the growth of the primary market and development of a market yield curve," Ncube said.

Economist Dr Lorraine Nyazema said the return to auction-based issuance was an important step towards strengthening the domestic capital market and improving price discovery.

"The return of Treasury Bill and bond auctions is a positive step towards strengthening Zimbabwe's domestic capital market and improving price discovery," she said.

However, she cautioned that the success of the programme would depend heavily on maintaining macroeconomic stability.

Key risks include climate shocks, global commodity price fluctuations, fiscal slippages and external financial pressures.

"Should inflation rise or the exchange rate weaken, investors would demand higher yields to compensate for greater risk," Nyazema said.

"That would increase the Government's borrowing costs and reduce demand for longer-dated securities at auction."

She said disciplined fiscal and monetary policies would therefore be critical to sustaining investor confidence and ensuring the success of the auction programme.

Nyazema said the Staff-Monitored Programme remained central to Zimbabwe's debt resolution strategy and prospects of regaining access to affordable development finance.

"If implementation is delayed, the Government will have to rely more on domestic revenues, tighter expenditure controls, improved tax compliance and reduced revenue leakages, while expanding public-private partnerships to support infrastructure investment," she said.

However, she noted that these measures could not fully substitute for concessional external financing, making continued reforms essential for fiscal sustainability and investor confidence.

Economist Enoch Rukarwa said Government's target of keeping the fiscal deficit below 3% of GDP was ambitious given prevailing economic conditions, although recent policy developments suggested the objective could be achieved if reforms remained on course.

"When you examine the current macroeconomic dynamics, it is clear the target is challenging," Rukarwa said.

"However, the authorities have demonstrated encouraging commitment to reducing budget deficits and containing public expenditure."

He said improvements in exchange-rate stability and inflation following the introduction of Zimbabwe Gold (ZiG) in April 2024 had strengthened the macroeconomic environment and created a platform for further progress.

Rukarwa also supported Treasury's decision to restrict non-concessional borrowing to economically viable projects, arguing that borrowing should be directed towards investments capable of generating sufficient economic returns and repayment capacity.

The planned return to competitive Treasury auctions, coupled with tax reforms and tighter borrowing controls, is expected to play a central role in Government's efforts to strengthen domestic financing, restore debt sustainability and support the country's broader economic transformation agenda.