A review of the 2020 national budget

Prosper Chitambara

The long-awaited and highly anticipated 2020 National Budget was officially unveiled by the Minister of Finance (pictured), Professor Mthuli Ncube on November 14.

The Budget is coming at a time the economy is mired in chronic high inflation which makes national budgeting a very complicated matter. The risk is that by the time the 2020 national budget comes into effect in January 2020, it could have been overtaken by inflationary developments rendering it inadequate, thereby necessitating a supplementary budget very early on during the year. The economy is expected to contract by an estimated -6,5% in 2019 down from 3,4% recorded in 2018.

In 2020, economic growth is projected at 3,0%. This is however strongly dependent on good rainfall which should have a positive impact on the agricultural sector as well as power generation at Kariba.

The 2020 national budget prioritises the following areas: growth and productivity; job creation; competitiveness; and strong, sustainable and shared development. While the budget is placing emphasis on employment creation, there are however no clear employment targets. There is need to ensure that the economic growth is employment-rich and poverty-reducing. This can be achieved by mainstreaming employment and poverty targets in all the macro-economic and development policies. Importantly, employment creation must also be an explicit monetary policy objective alongside price stability. Employment creation is very important in the fight against poverty as it provides an important link between economic growth and poverty reduction.

According to the Zimbabwe National Statistics Agency (ZimStat), monthly inflation rose to 38,75% in October 2019 up from 17,72% in September 2019. However, official inflation numbers only capture price developments in the formal economy in spite of the fact that the economy is now highly informalised. This therefore implies that actual inflation on the ground could be higher than official inflation numbers.

The Minister of Finance is projecting inflation to be in single-digit territory from the first quarter of 2020 and to close the year around 2%. This is unlikely to be realised in view of a number of factors that include, for instance, the removal of the existing subsidies for maize and wheat that were being provided to grain millers through the Grain Marketing Board (GMB). Moreover, government expenditure is expected to increase from the revised ZW$26,2 billion for this year to a projected ZW$63,6 billion for 2020 representing a 143% increase.

This percentage increase in public expenditure is indicative of price developments in 2020. Therefore it is highly unlikely that inflation will end the year at 2% especially given the high likelihood of a supplementary budget. The revised budget deficit of ZW$5,2 billion by year end is 230% actually higher than projected in his 2019 budget. Actual total government spending for the year 2019 will be over ZW$26,2 billion representing a 218% negative variance from the initially projected ZW$8,2 billion.

The marginal reduction in value-added tax from 15% to 14,5% and in corporate tax to 24% from 25% while positive will not bring in significant tax relief owing to the existence of a plethora of other taxes, duties and levies. The plethora of taxes, levies and statutory fees must be reduced and streamlined through the adoption of a uniform and simplified tax regime. The authorities must urgently embrace an e-government system that includes company registration and national procurement. E-government can also help to make public service provision and governance more efficient and effective and also mitigate corruption by raising transparency and accountability through digital footprints and reducing face- to-face interaction.

In terms of other sectoral spending targets and performance, the country is not doing well. For instance, according to the Social Policy for Africa (2008), the country must spend at least 4,5% of GDP on social protection. However, in 2019, the country will spent only an estimated 0,26% of GDP on social protection, while the projected social spending for 2020 is 07%. With respect to water and sanitation, the country must spend at least 1.5% of GDP according to the eThekwini Declaration (2008) and the Sharm El-Sheik Commitment (2008).

However, the country is projected to spend only 0,7% in 2020, the same as the revised estimate for 2019 below the 1,5% threshold.In terms of infrastructure spending, the African Union Declaration (2009) stipulates that African countries must spend at least 9,6% of GDP on infrastructure. In 2019, the country will spend an estimated 12,7% on infrastructure while the figure is projected to decline to 7,2% in 2020.

Government allocation on health and child care as a percentage of total public expenditure rose to 10,1% in 2020 up from 7% in 2019. The Abuja target still remains an elusive target for the country. Total government expenditure on health as a percentage of total government expenditure is less than 15% (Abuja target) over the period 2012-2020. The Sub-Saharan African average is 13%.

The government also spends a relatively small share of its gross domestic product (GDP) on health care projected at 1,9% in 2020 down from an estimated 2,8% in 2019.

The inadequate public financing of health has resulted in an overreliance on out-of-pocket and external financing which is highly unsustainable. Development assistance towards the health sector is projected at US$360,7 million in 2020 up from US$316,2 million in 2019. The high dependency on external financing is unreliable, unpredictable, unsustainable and highly dependent on the political environment, raising concerns on the sustainability of health financing and the vulnerability of government’s budget should external funding be withdrawn.

My view is that the National Budget falls short of restoring confidence back into the economy in the context of a toxic political environment. There is a sense that government is not in complete control of the economy especially given the rising incidence and prevalence of informality.
Moreover, the pace of implementation of key institutional reforms such as parastatal reforms and strengthening of property, especially in agriculture, has remained rather slow.

Prosper Chitambara is a scholar based in Harare. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society. Email –kadenge.zes@gmail.com and cell No. +263 772 382 852.