FINANCE minister Mthuli Ncube will next week present his maiden budget, in which he faces a stern test to balance austerity measures and recovery or growth imperatives.
The presentation of the 2019 budget will come at a time when the economy is hard hit by a debilitating liquidity crunch, severe cash shortage, rising inflation and skyrocketing of prices and shortage of basic commodities.
The economy has deteriorated since the pronouncement by Reserve Bank governor John Mangudya in his monetary policy statement on October 1 that Real-Time Gross Settlement and foreign accounts are separated and Ncube’s interventions. This triggered panic, with the bulk buying of basic commodities and pricing problems, as well as currency volatility, creating serious shortages. It has also resulted in the skyrocketing of prices of commodities as the rates on the alternative market shot up to as high as 600%. It has also resulted in some retail outlets, pharmacies and service providers charging in hard currency, prompting increasingly vocal demands by workers in various sectors for salaries to be paid in forex — a re-dollarisation after recent virtual de-dollarisation.
Ncube’s announcement of a 2% tax on electronic transfers has only worsened the situation, sparking outrage over his failure to consult with various stakeholders. Such has been the ferocity of the protest over the tax that the Finance Ministry permanent secretary George Guvamatanga apologised for failing to consult President Emmerson Mnangagwa. Guvamatanga, responding to a rising cacophony of protest, promised a review of the tax which has increased the cost of doing business, while also complicating the ease of doing business and making local companies uncompetitive.
Budget expenditures over the period January to September 2018 amounted to US$6,3 billion, against the planned US$4,1 billion. Resultantly, expenditure over-runs of US$2,2 billion were incurred, mainly due to over-expenditure on capital and net lending, employment costs and interest on debt.
The revenue and expenditure performance resulted in a budget deficit for the period under review of US$2,5 billion, against a target of US$715,4 million. Deficit was financed by Treasury Bills and overdraft to the central bank.
There is also a huge infrastructure gap which is compromising service delivery. Over US$28 billion required for rehabilitation of existing infrastructure at rate of US$2 billion annually. These are challenges Ncube has to confront and tackle. The other major challenge Ncube will face will be to cut down government spending, particularly the wage bill which has gobbles up more than 90% of revenue, leaving virtually nothing for capital projects such as infrastructure development and social services.
This has been worsened by Mnangagwa’s decision to increase salaries of civil servants and soldiers by between 17% and 22% just before the July 30 elections this year further balooning the wage bill. Former Finance minister Patrick Chinamasa pointed out at the time that the decision could result in the wage bill increasing from 90% to 120% of revenues, increasing the fiscal deficit. This was despite his declaration in the 2018 budget in December last year that the government would reduce the wage bill to 70% by the end of the year.
Ncube’s task to reduce the wage bill is not going to be made any easier by growing demands by restive civil servants to be paid in foreign currency after their salaries have been severely eroded by the skyrocketing of prices and the additional 2% tax on electronic transfers. He has also committed to paying some form of bonus to civil servants — which will only ratchet up the pressure on the fiscus. Ncube must also grapple with the task of reducing the country’s US$16,9 billion debt. The domestic debt has increased by more than 34 times from US$275,8 million in 2012 to the current level of US$9,5 billion.
Ncube has to address the currency volatility in the market which has resulted in a distorted market that has wreaked havoc on the economy. The introduction of the bond note in November 2016 has revived the black market and has largely contributed to the chaos in the economy. The quasi-currency has depreciated significantly to the greenback despite government’s insistence that it is trading at par with the United States dollar. Zimbabwe Stock Exchange (ZSE)-listed company Delta Corporation, a bellwether stock, has joined the chorus for the removal of bond notes.
Government expenditure must be tackled if Ncube is to make headway with the budget, according to business consultant Simon Kayereka.
“The minister must tackle the elephant in the room, which is currency reform and government expenditure,” Kayereka said. “We cannot go on pretending that the bond note is on par with the US dollar. He must give the bond note a timeline and phase it out. If he fails to do so, either the market will eventually reject it or the parallel market will continue to have a negative impact on the economy.”
Kayereka said that since Ncube introduced the infamous 2% tax to shore up revenues, he has to complement it by reigning in government expenditure.
“The minister also needs to look at incentivising exporters and at the same time vigorously promote an import substitution programme,” Kayereka said.
Ncube will also have to tackle the issue of state-owned enterprises which have bled the fiscus through gross mismanagement, corruption and incompetence.
Ncube, however, told the Zimbabwe Independent on the sidelines of the announcement of the monetary policy statement in October that, although the privatisation of state enterprises has been on the cards for a long time without concrete action taken, this time the matter will be handled differently.
“Yes, it has been on the cards for a while, but I am going to get it done. I am a man of action,” Ncube said.
Government has put in place a plan to reform parastatals which involves lining up 41 parastatals for privatisation, departmentalisation, commercialisation, liquidation and listing on the ZSE.
However, the proof of the pudding is in the eating.
Cutting costs should form the crux of Ncube’s budget, said economist John Robertson.
“He needs to save money and not spend money,” Robertson said.