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Key economic expectations from the 2019 budget presentation

22 Nov 2018 at 11:25hrs | Views
As the finance minister prepares to present the 2019 National Budget to parliament on the 22nd of November, a lot is at stake for economic development. In 2016, Zimbabwe's tax revenues were $3.5 billion but the government spent $4.9 billion thereby incurring a budget deficit of $1.4 billion. In 2017, revenues were $3.8 billion but expenditure went up to $6.5 billion and budget deficit was a record high of $2.6 billion. This year, the treasury budgeted $5 billion before the 2% Intermediate Tax was introduced in October. However expenditure is expected to breach $7.97 billion and exceed the previous year's budget deficit. The deficit gap has been widening rapidly since 2013 with employment costs guzzling over 90% of the budget during planning and over 100% in actual expenditure after considering unbudgeted expenditure. The finance minister is fully aware that this is the elephant in the room and key developments in infrastructure such as Energy, Roads, Health, Education, Water and Sanitation sorely rest on the unpopular decision to cut the civil service expenditure.

The Public Service Commission (PSC) unearthed over 70 000 Ghost Workers on the government payroll in 2017. These shadow workers gobble at least $340 million in one year. The failure to act on these known loopholes raises more questions and eyebrows on the political will to curtail the Budget deficit. Other loopholes are in Command Agriculture funding where the Army recently highlighted that the program will carry on for the next 10 years. The government has been using domestic debt to finance inputs subsidies for the program since 2016, even though the import bill for maize, wheat and soya still remains high.

The finance minister has already launched the Transactional Stabilization Programme (TSP) which is set to last until 2020. The program has plans to cut government expenditure so as to reduce the relentless budget deficit, raise more revenues from electronic transactions and control domestic borrowing. However the public will expect concrete reforms on the following key aspects:

Monitory Intervention
The Apex Bank and the finance minister have insisted that the Bond Note is on par with the US Dollar even though the claims have no equilibrium basis. The exchange rate disparities have been driving prices for consumer and industrial goods up. Health services and building materials are now indexed in US Dollar by local suppliers. Inflation has wiped out the buying power of the Bond Note and RTGS balances in a market where cash shortages have been a persistent problem in the past 2 years. A lasting solution on the monitory front will bring stability on exchange rates and bring confidence to the business community. Suppliers can also make long term commitments in the local market with an eye on meaningful returns in the future.

Foreign Currency Allocations
The central bank has been playing the role of allocating foreign currency for the country's imports since November 2016 when the Bond note was introduced. The key challenge with that centralized role is balancing between allocating more forex to consumptive products (finished products) or value adding goods (raw material or capital imports). The failure in balancing the two has seen various producers, service providers and local authorities failing to deliver critical goods and services. What makes it worse is that the Apex bank sees priority in allocating foreign currency to chartered private jets, hotel expenses and medical bills for top civil servants at the expense of corporates or industries that earn the forex in the first place. Capacity utilization in the industry has been dropping. If no reforms are taken, industries will be left with limited options than retrenching workers to stay afloat or closing shop. The Finance minister needs to set the tone that will maintain parity between supporting local production and importation of critical supplies such a fuel, soya and grain.

Infrastructure Development
Zimbabwe's budget deficit woes are expected to persist as long as radical reforms are not taken to cut civil service related expenditure by a big margin. The government has been engaging IMF to find ways to restructure its civil service head count and remuneration structure. Domestic debt has been used to finance bonuses among other cot centers thereby digging a hole of more than $9.5 billion in less than 4 years. The neglected areas include key infrastructure such as roads, border posts, energy generation, basic health care facilities, schools, dams (water) and sanitation.

The minister is expected to break away from the past and allocate a significant budget to these important infrastructure aspects. The country can only attract more investment and produce as much as its infrastructure can support at that moment.

Debt Repayment Plans
The business community especially the banking sector will expect the minister to make concrete plans on foreign debt repayment so that they can be able to secure cheap lines of credit for onward lending locally. Adherence to payment terms for the issued TBs Is also key to the banking sector liquidity position. A robust banking sector drives productivity in key sectors such as real estate, mining and manufacturing.  

Austerity measures in government

The 2017 budget presented by the former finance minister talked tough on austerity and was applauded as one of the best budget presentations in years. One year down the line, nothing has changed in terms of cuts on foreign trips, foreign airline bookings, medical treatment abroad, hotel allowances, generous fuel allocations, foreign university packages, multiple luxury vehicles usage and hiring, retirement for over 65 staffers and closure of redundant foreign missions. More staffers have found their way on the government payroll too, with the Public Service Commission (PSC) all but admitting that it has no control over the alleged ghost workers and secret recruitments in various government departments. From there, the minister needs to reform funding for command agriculture and reign on corruption in inputs distribution. Captain of industry had made recommendations for the remodeling of agriculture subsidies to include private sector funders and commercial banks.

Key outcomes should include reducing future budget deficits which curbs the need for future domestic borrowing. The Zimbabwean economy can hardly grow if 100% of its annual budget goes towards civil service expenditure and if austerity measures are avoided for political reasons. Only time will tell if the minister can be able to take tough decisions in his budget presentation and achieve where his predecessor failed, the implementation part.

Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on or Skype: victor.bhoroma1.

Source - Victor Bhoroma
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