Ncube’s mid-term budget review bereft of solutions

LAST week’s Mid-Term Budget and Economic Review statement by Finance minister Mthuli Ncube, which projects the economy to shrink by 4,5% this year largely due to Covid-19-induced pressure, was bereft of solutions urgently required to tackle Zimbabwe’s intractable economic crisis, characterised by galloping inflation, widespread company closures and hunger.

Tinashe Kairiza

Analysts said the statement, delivered at a time the Zimbabwean dollar is rapidly depreciating and industries tittering on the brink of collapse, was underwhelming as it failed to spell out a cogent strategy to address the vicious currency volatility crisis that has been worsened by the impact of the coronavirus which has resulted in hundreds of thousands of fatalities globally.

At the heart of Zimbabwe’s deep-seated economic malady, desperate Zimbabweans expected the Treasury boss to spell out a raft of measures to extinguish the country’s US$8,1 billion official external debt, runaway inflation which is above 700% as well as help revive international re-engagement efforts, key towards unlocking fresh lines of credit from multilateral lenders. Zimbabwe’s gargantuan debt stock accounts for more than 50% of its gross domestic product.
As Zimbabwe reels from the ravaging impact of the global pandemic, which has so far claimed 19 lives with more than 1 000 positive cases, Ncube’s uninspiring budget review statement also failed to introduce safety nets to cushion hunger-stricken citizens from the scourge.

Between January and June, total social protection expenditure amounted to ZW$902,2 million (US$12,5 million at the official rate of US$1 to ZW$72) against a target of ZW$1,253 billion (US$17,4 million). Grain deliveries stood at 908 000 metric tonnes against the 2,1 million metric tonnes required for industrial and household use. Millions of Zimbabweans are now being stalked by hunger.

However, merely buttressing the focus of Zimbabwe’s ZW$63,2 billion (US$877,7 million) 2020 budget, which has so far seen the country posting a surplus of ZW$800 million (US$11,1 million), Ncube did not announce a supplementary budget, as 54% of the votes are yet to be drawn.

Ironically, Ncube presented the budget review statement in the National Assembly, hardly three months after he had pleaded for a US$200 million bail out from international financial institutions (IFIs), without which Zimbabwe’s fragile economy would contract by 20% from the pandemic, which will see global GDP shrink by 8%, exposing 8,5 million of the country’s 15 million people to hunger. Ncube’s overtures were spurned and the Treasury boss was told to implement sweeping economic reforms that are crucial towards setting Zimbabwe’s comatose economy on a firm recovery trajectory.

Zimbabwe has already failed to meet targets of the International Monetary Fund (IMF) Staff-Monitored Programme (SMP) which underscored the need to rein in public expenditure and tame inflation.

The coronavirus-induced economic decline could be prolonged for ill-equipped nations like Zimbabwe, according to the African Development Bank (AfDB).
Economist Tawanda Purazeni contends that by his own admission, Ncube acknowledged that he did not have the magic wand required to overcome the myriad of challenges buffeting the floundering economy.

“Expectations were high that issues to do with runaway inflation, currency crisis, rampant unemployment and negative growth would be addressed. These are the key economic issues affecting the country,” Purazeni said. “By remaining silent on these critical issues, Ncube conceded that the problem is beyond his control. His mid-year budget review will go into the history dustbin as yet another irrelevant economic blueprint.”

Glaringly, with most countries in the region announcing hefty stimulus packages to keep their industries and economies afloat, local industries have to make do with a paltry ZW$18,5 billion (US$256,9 million) package that government unveiled in April.

The Confederation of Zimbabwe Industries (CZI) has warned of dire consequences that include a sharp decline in productivity, massive job losses and company closures if government does not mobilise a comprehensive rescue package for various productive sectors of the economy.

In contrast, neighbouring South Africa, the continent’s most developed nation, unveiled a US$26 billion stimulus package to keep its economy afloat from the ravaging effects of the global pandemic.

Ncube also forecast inflation to end the year at 300%, a projection at variance with Mara Atlas which sees it ending at 1 200%. Market watchers contend that taming runaway inflation does not only require broad money supply, but instilling confidence across the economic spectrum.

However, the suspension of trading on the Zimbabwe Stock Exchange (ZSE) and certain transactions on mobile money transfer platforms have further unnerved a jittery market.

“The minister is overly optimistic that inflation will slow down by over half to 300% by the end of the year, based on the naïve hope that fiscal consolidation and a slowdown in money supply growth will instil confidence,” wrote economic analyst Brett Chulu. “He conveniently ignored the rattling of confidence by his political colleagues who are destroying free markets.”

The Treasury boss also failed to outline how the government is planning to resume trading on the local bourse.

Cut off from fresh lines of credit, foreign direct investment (FDI) inflows declined from US$116,6 million to US$71,2, highlighting lingering perceptions on the country as a terrible investment destination despite numerous visits by investors as touted by state media.

In recent times, President Emmerson Mnangagwa’s administration has suffered a severe backlash for its decision to rationalise farms in a policy move that has seen the government seizing productive commercial farms.

Economic analyst Prosper Chitambara contends that the ZW$800 million (US$11,1 million) budget surplus in the face of collapsing social service delivery does not add impetus towards extricating Zimbabwe from its economic morass.

“It would seem that the Ministry of Finance and Economic Development is merely seized with balancing the books at the expense of social service delivery,” Chitambara says. “Indeed, it is better to run a fiscal deficit while investing in social services (such as health, water and sanitation) than to balance the fiscal books with collapsed social services.”

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