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2021 National Budget: A Call to go back to basics

THE national budget essentially entails the use of government spending and taxation to influence the economy. It is an instrument of resource allocation in order to ensure not just a rapid pace of gross domestic product (GDP) growth, but also the achievement of important development imperatives such as price stability, employment creation and poverty reduction.

Prosper Chitambara :Economist

Overall, the macroeconomic and development performance of a country depends on how well its public resources are managed. Ultimately, the problem of underdevelopment is a stewardship problem.

The Minister of Finance and Economic Development is expected to present the 2021 national budget on November 26.

The national budget is coming at a time when the country has achieved some measure of stability on the foreign exchange markets, as well as on the inflationary front thereby providing an important basis for growing the economy.

However, the socioeconomic context remains very challenging, for instance the incidence of extreme poverty increased from 29% in 2018 to 34% by the end of 2019. This is expected to worsen on account of the Covid-19 pandemic.

The 2021 national budget must focus on the basics by prioritising and incentivising both public and private investments in critical productivity-enhancing and poverty-reducing sectors of the economy such as health, education, agriculture, water and sanitation, and infrastructure.

This is vital to ensuring that any future post-Covid-19 growth pattern is pro-poor, inclusive, employment-intensive, and sustainable.

In line with international best practice in terms of macroeconomic management, it is vital to ensure that explicit employment and poverty targets are mainstreamed in the national budget, as well as all the macroeconomic, investment and development policies.

Equally important, employment creation must also be an explicit monetary policy objective alongside price stability (a dual mandate monetary policy framework). Employment creation is very important in the fight against poverty as it provides an important link between economic growth and poverty reduction.

The 2021 national budget must provide the basis for the reorientation of the state towards a democratic developmental welfare state economic model. Democratic developmental welfare states put people and their basic human rights at the centre of development.

They have established social protection floors that assure (at the very least) a minimum basic income; provide access to food security, health care, education, housing, employment and social welfare services to all of their citizens.

Zimbabwe is a signatory to various regional and international agreements that provide benchmarks on budgetary allocation to fundamental socio-economic rights.

Prioritising the attainment of these benchmarks could help facilitate the transition to a democratic development welfare state model.

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 spent an estimated 0,26% of GDP on this, while the projected spending for 2020 is 0,7%. This is grossly inadequate to adequately deal with emergencies such as Covid-19.

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 spent 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.

However, the Abuja target still remains an elusive target for the country. The inadequate public financing of health has resulted in an overreliance on out-of-pocket and external financing, which is highly unsustainable and has ultimately resulted in poor health and development outcomes.

An analysis of the votes performance for key ministries for the period January to June 2020 shows that there is a poor spending performance in the key social and productive sectors.

The social and productive sectors are critical for the progressive realisation of socioeconomic rights, as well as sustainable development goals (SDGs).

For instance, only 37% of the primary and secondary education budget had been disbursed and utilised by June 30, 2020, while only 39% of the total health and child care budget had been disbursed and utilised by June 30.

On the other hand, 72% of the defence and war veterans budget had been disbursed and utilised by June 30 and 65% of the total home affairs and cultural heritage budget had been utilised by June. It is therefore important to ensure there is increased support for the critical social services like health, water and sanitation, social protection, and education in line with regional and international benchmarks in the 2021 National Budget.

An important aspect of going back to basics entails prioritising the small-and-medium enterprises (SMEs) to help them grow or thrive. It has been found that 80% of new jobs in the formal economy come from SMEs.

It is, therefore, vital to support the SMEs sector by addressing their specific constraints, which include: access to credit and financing. Creating an enabling or supportive policy, institutional and regulatory framework that reduces the cost of doing business and improves the investment climate as well as lowering the barriers and high cost of transition to formality.

There is a need to strengthen institutions around governance of natural resources through increasing transparency and accountability as a way of dealing with the leakages through smuggling and other malfeasances.

In this regard, the adoption of the Extractives Industry Transparency Initiative (EITI) becomes an important milestone.

The 2021 national budget must also focus on the mobilisation of domestic savings as a basis of improving investments. For instance, notwithstanding the fact that Zimbabwe has promulgated the Sovereign Wealth Fund of Zimbabwe Act (2014), the fund is still to be set up.

There is, therefore, an urgent need to fully operationalise it as a basis for mobilising domestic resources for financing development in a more sustainable manner. No country can sustainably develop without relying more significantly on domestic savings.

The Covid-19 pandemic demonstrated the importance of having domestic savings as a way of preparing for the rainy day. Ultimately, the 2021 National Budget must provide the basis to make the economy more sustainable, resilient, diverse and innovative.

Chitambara is a Development Economics scholar. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society. — kadenge.zes@gmail.com or mobile +263 772 382 852

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