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On the recent national budget

18 Dec 2018 at 09:00hrs | Views
Any economy is driven by three industries which are the primary, secondary and tertiary industries. The contribution to economic growth from these industries depends on the level of development of the country. For the case of Zimbabwe, primary industry such as mining and quarrying and agriculture and forestry plays a crucial role in economic growth. While the contribution from the manufacturing sector went down recently but it is very central for improving peoples income. For example, if Zimbabwe is to come out of this long period of economic decline, construction, manufacturing, electricity and water sectors need to be supported significantly. Tertiary industry has been growing but at a much slower pace that its true potential. To achieve economic growth and development, the Zimbabwean fiscal and monetary authorities should devote resources towards the development of these sectors in a more transparent and accountable way.

Looking at the fiscal policy, the finance organ should have allocated the resources in such a way that would encourage the growth of these sectors. However, much of the spending is allocated to recurrent expenditure and this is problematic and unsustainable. Recurrent expenditure is the spending mainly allocated to the operations (travelling and accommodation, telephone, electricity and water bills), wages and salaries, purchases of goods and services, and current grants, subsidies without much contribution to capital expenditure – payments for acquisition of fixed capital assets, stock, land or intangible assets.

The 2019 proposed budget has addressed some of the critical points the economy requires, but, to a greater extent, overlooked the most imperative areas the economy needs addressed urgently. I will go through what the budget positively addresses, before examining what is omitted. The good points proposed in the 2019 budget are as the follows:

 - The recognition of monetary policy and fiscal policy as complementary

 - Coming up with structural and supply side policies such as, improving on accountability; respect of property rights and international treaties; public enterprises reforms, support to productive sectors of agriculture, mining, manufacturing and tourism

 - Gradual exit from exchange controls to market based mechanisms for foreign currency allocation.

 - Coming up with reasonable forecast for economic growth for 2019. This helps in anchoring expectations and build trust.

On the downside, Zimbabwe has been continuously running budget deficits in past years and its domestic debt and external debt has now been ballooning at an astonishing rate. The degree of the austerity measures proposed are not enough. Running a budget deficit of 5% is reasonable but what is this deficit (US$1.57 billion) financing? Does it help in creating more income in the future or increasing the standard of living for the Zimbabweans? Given the disproportionately large civil service workforce, existing of ghost works, poor policy planning and implementation, only means, in the future, the Zimbabweans would have to fund, not only, the deficit but also the interest on borrowing to fund the deficit. Even though the budget deficit is at US$1.57 billion, the total expenditure and net lending, including Loan repayment is projected at US$10.3 billion.

Recurrent expenditure is huge; for example, the amount of fund going to the soldiers and police is relatively high. The proportion of the budget going to defence and war veterans and home affairs and cultural heritage is about 13 % of the total budget, while transport and infrastructural development combined is a mere 4.9%. There is need to fund more capital expenditure, like resuscitating the ailing industry, support the poor performing agricultural sector (based on ability on political network), revamping the cities, schools, roads, street lighting, parks, clinic and hospitals, among other indispensable organs of the economy.

The ministry of Finance and Economic Development expects the economy to almost double by 2021 from the 2007 figure. Nominal gross domestic product (GDP) at market prices for 2017 stood at US$22, 041.3M and forecasted to increase to US$42, 757.7M. No policies have been clearly articulated on how this is to be achieved. In addition, there is need for an explanation on the significant decrease in overall GDP and GDP components growth rates from 2018 to 2019. For example, the growth rate of contribution of agriculture and forestry to GDP is at 12.4% in 2018 before falling to 3% in 2019 and then pick up in 2020 to 19%, the same is with mining and quarrying that starts at 13% in 2018 before falling to 7.5% in 2019 and then pick up in 2020 to 9.3%. The majority of all other components have the same trend. What are the economic fundamentals behand that? That needs answers.

Dr. Tutsirai Sakutukwa
Dr. Marshall Makate

Source - Dr. Tutsirai Sakutukwa and Dr. Marshall Makate
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