Budget fails to inspire confidence

Melody Chikono

FINANCE minister Mthuli Ncube’s 2020 National Budget presented last week fails in every sense to inspire confidence in the economy after he deviated from his September pre-budget paper, analysts say.

A pre-budget statement reflects the culmination of the strategic planning phase of the budget formulation and how the executive aligns its policy goals with the resources available under a clear fiscal framework.

In September, Ncube presented a pre-budget strategy projecting GDP growth of 4,6% and nominal GDP of ZW$209,3 billion in 2020. Revenues were forecast at ZW$24,8 billion, a figure accounting for 11,8% of GDP, while expenditures were estimated at ZW$28,5 billion (13,6% of GDP).

Barely a month later, Ncube changed the numbers yet again in his final 2020 fiscal statement, saying it was informed by some economic developments. Forecast revenues were now estimated at ZW$58,6 billion from ZW$24,8 billion and a budget deficit of around 1,5% of GDP, implying expenditures of ZW$63,6 billion.
According to some accounting boards, the country has met all the conditions of hyperinflation and accounting books are now being adjusted with International Financial Reporting Standard 29, which caters for hyperinflationary accounting.

Despite this, Ncube remained optimistic the country would by year-end 2020 have single-digit inflation of around 2%, a figure analysts say is far-fetched and too ambitious.

Ncube banned the publication of year-on-year inflation figures until February next year to allow the official statistical agency to collect like-for-like data needed in the computation of the full-year numbers.

Although month-on-month figures are said to be slowing down, prices on the ground have been rising fast.Ncube, however, revised downwards the growth forecast of the economy and agricultural expansion from 6,45% to 3% and 10% to 5% respectively.

Although Ncube’s budget statement has received the thumbs-up from President Emmerson Mnagangwa, who has described it as a balanced budget, it has a lot of downsides, which dash the hopes of ordinary citizens.

According to Ncube, the main fiscal policy objective in 2020 is to manage expenditure within the allocated funds supported by non-inflationary financing and complemented by a tight monetary policy framework.

Economists argue that single-digit inflation figures predicted by Ncube are unattainable.Africa Economic Development Studies (AEDS) executive director Gift Mugano told businessdigest that the budget did not create the foundation for hope and economic turnaround.

“A budget would require that people see light in it, see policy predictability, certainty and policy clarity. There were no confidence building efforts in this budget. The moment you move away from the core budget, you destroy everything,” Mugano said.

“Government should be able to stick and die with its policies. If you play around with the numbers, people will then lose confidence. I will give you an example, SMEDCO (Small and Medium Enterprises Development Corporation) put forward a request for ZW$30 million in the budget but it got a ZW$90 million allocation. What does that tell you?” he asked.

“The minister adjusted most of the figures by between 100% and 200% in some cases. On inflation, I will tell you that I do not foresee academic rigging. It’s impossible to have single-digit inflation figures in this environment. We have said it before and we are saying it again. The same way he failed on growth rate, is the same way he will fail on inflation.”

Mugano added that the budget did not do well in terms of addressing the import bill.He said the bulk of the imports are commodities that can be produced in Zimbabwe.

“Where it mattered, he did not do it,” Mugano said.Economist Prosper Chitambara said while Ncube tried to allocate reasonable amounts to health and agriculture, the issue of confidence building was not addressed in the budget.

Chitambara noted that Ncube’s single-digit inflation figure would remain a dream unless agriculture performed well.“The minister tried as he came up with adjustments on agriculture and healthcare, which are key at the moment. As well as marginal taxes such as VAT (value-added tax) though marginal. The biggest challenge of this budget is that it’s in a chronic high-inflation environment,” Chitambara said.

“I foresee high inflation by Q1 2020 and I don’t think it will restore confidence although confidence is a function of other factors including structural reforms, political and social reforms. The reform process affects confidence.”

“Attainment of a one-digit figure is not attainable in this environment unless there are improvements maybe on agriculture. If we have a good harvest it will help moderate the prices of commodities. Otherwise I see inflation remaining in high territory in double digits in the foreseeable future. It’s a tricky situation.”

Economist Clemence Machadu said while the budget is gearing for higher productivity, growth and job creation, it lacks the impact needed to turn such aspirations into realities.

Machadu said targeting a single-digit inflation figure by the first quarter of 2020 was a tall order given the inflationary pressures in the economy.
He sees inflationary pressures rising as wage demands by labour unions soar. Wages are still below the cost of living.

“If we are to remove the billions in the budget in RTGS terms, we see that the budget is just about US$4 billion when converted at the interbank rate, and about US$3 billion when converted at the parallel market rate,” Machadu said. “This is not a lot of money; so growth is really not to be expected to be anchored by the budget money, the majority of which is devoured by the recurrent expenditure genie anyway, but from the strength of policy measures pronounced and ability to implement them.

“Targeting GDP growth of 3% while coming from a dip of -6,5% is difficult to achieve with the average measures pronounced in the budget. Targeting a single-digit inflation regime by the first quarter of 2020, from the current 38%, is also a tall order, as inflationary pressures are building up — left, right and centre. Pressure will continue to come from organised labour whose wages are still below the cost of living, especially with anticipated increases in the prices of bread and mealie-meal. Wages themselves are also too low to support production and increased capacity utilisation in the industry.”