Skirting on the issue of re-dollarisation flawed

FINANCE minister Mthuli Ncube presented the mid-term budget and economic review statement last week at a time the economic crisis is deepening amid a debilitating liquidity crunch, acute fuel and foreign currency shortages and 800% runaway inflation which is decimating incomes and pensions. Acting business editor Kudzai Kuwaza (KK) this week caught up with CEO Africa Roundtable chairperson Oswell Binha (OB, pictured) to discuss various aspects of the budget.

Below are excerpts of the interview:

KK: The mid-term budget has been criticised for its failure to address the issue of dollarisation. How critical was it for the government to give details of this in the mid-term budget?

OB: Zimbabwe’s budget structure has always been a source of anxiety and uncertainty. Economic players should, of necessity, depend on the fiscal direction to plan and take key economic decisions. The mid-term budget failed dismally in this regard. It is unfortunate that we are talking about a second dollarisation in a space not exceeding a decade.

Yes, the budget was silent on this matter and this is a manifestation of policy deficiency in dealing with this inevitable dollarisation which is spontaneous and market-driven.

In my view, the budget needed to provide some leadership on this matter in order to avoid a chaotic dollarisation that creates serious pricing distortions as is already the case. Skirting around dollarisation marks the start of flaws in government fiscal planning.

KK: The government has projected an economic contraction of 4,5% for 2020, which is lower than estimates by institutions like the World Bank which has put the contraction at 10% and the Economist Intelligence Unit which sees a 15,5% decline. What is your projection?

OB: Our growth has always been driven by agriculture, mining, hotel and distribution sectors. Apart from mining, our agriculture was severely affected by a multiplicity of self-inflicted problems, some of which include a populist agriculture policy regime, disintegration of the agriculture value chains, redundant productive land and a poor rainy season, among other things.

The hotel, hospitality and distribution sectors are arguably the hardest hit by the coronavirus pandemic-induced lockdowns. The economy has perennially suffered from eradication of disposable incomes, hence the erosion of the propensity to spend at both individual and household levels.

Importation of critical raw materials for value-added manufactured goods is seriously constrained, coupled with closures of ports of entry. I therefore estimate our economy to contract by over 20% this year. It is important to note that our economy was sickly and likely to shrink even without the Covid-19 pandemic.

You will agree with me that the biggest threat to our growth potential over the years has always been toxic policies which do not support genuine economic activity.

Until a time when the Finance minister (Ncube) realises that as a nation we must genuinely live within our means and deploy our resources where our mouths are, we shall continue to register sub-optimal growth. Both the government and private sector need to seriously master the concept and art of collective growth by keeping money circulating within our borders.

KK: The minister said there is no need for a supplementary budget because the money availed in the 2020 budget has not yet been used up. What is your view?
OB: One wonders from which planet our honourable minister is coming from. That is being very dishonest and may be misunderstood to be highly incompetent. The minister is expected to understand the dynamics of the real economy than to just interpret numbers.

Economists have agreed that the economy has been shrinking at an alarming rate and one would certainly think that, given the inflationary environment, what was budgeted at the beginning of the year must be revised. Government manages the biggest order book for goods and services in Zimbabwe. I therefore challenge him to revisit it to arrive at a more realistic conclusion.

KK: In the mid-term budget, government estimates year-on-year inflation to come down to 300%. In your view, is this a realistic projection?
OB: Again, this is another shocking and outrageous projection. It will be a miracle to achieve this. On the contrary, the inflationary upward trend is likely to continue, given the unprecedented money supply growth and government’s insatiable appetite to spend.

The failure by government to manage and sustain social dialogue signifies potential economic malaise, particularly on the insincerity to deal with a living wage for civil servants. No amount of gymnastics will pacify the workers against galloping inflation, erosion of value of savings, if any and the mismatch of pricing and incomes.

Whilst I am not a proponent of joining the Rand Union, I believe a total policy reversal to revert to use multi-currency is an immediate imperative if the country harbours any chances of immediate economic stability.

KK: What is your view on the government’s decision to extend the 2% tax to foreign currency transactions?

OB: Governments, by nature, fund all government functions through taxation among other revenue sources. Since we now have domestic forex RTGS transactions, it is only fair that the tax does apply to all domestic transactions otherwise certain players were going to be left out.

However, Zimbabweans, corporate and individuals, remain among the highest taxed in the world with a collective taxation threshold of direct and indirect taxes of around 60%. It is against this background that I also do not subscribe to this 2% transaction tax.

KK: Government increased the tax-free threshold to ZW$5 000 (US$69). Is this adequate?

OB: This is far less than US$100, and it does not only signify increasing poverty levels in this country but provides evidence that the country is poor and highly indebted by global standards. The very poor who ordinarily should fall outside the income tax bracket are now taxed, a result of serious incomes erosion.

Of concern, however, is the opaqueness of the state, particularly in areas of financial reporting and accountability. High-level corruption, pilferage and general state inefficiencies are draining the fiscus of critical resources to attract and retain skills.

Bureaucrats in Treasury would do a better job in ensuring the economic dashboard reflects a consistent economic pulse. The integrity of national economic data must never be put to negative scrutiny, particularly when there is general lack of trust, confidence and uncertainty.

KK: There have been complaints in some quarters that the government did not do enough to capacitate companies in light of the impact of Covid-19. Do you subscribe to this view?

OB: Compared to other countries, this is a very true assertion. There could be more tax and other fiscal relief messages to cushion our private sector from the debilitating effects of the coronavirus pandemic. The ZW$18 billion (US$250 million) fund has since been eroded by inflation. We hope more can still be done.
KK: The government has put in place measures to promote domestic tourism, which has been severely impacted by Covid-19. Will this help revive the sector?
OB: Our tourism will never be the same again. Yes, domestic tourism can be a short-term reprieve.

However, Zimbabweans have become poorer over the years and, coupled with Covid-19-induced economic pressures of late, their expenditure on these services could be very limited. More so, locals are still very much sceptical to travel due to coronavirus fears and the inhibitions brought about by the lockdowns.

You will agree with me that any sophisticated and bankable tourism product is supported by other service industries which include, among others, dependable transport systems, a reliable payment platform, a motivated and professional workforce and indeed safety and security among other support services.

Zimbabwe continues to lag behind in all these in our efforts to develop a cost effective and affordable tourism product.

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