IN late July 2024, the Treasury published the 2024 Mid-term Budget Review (MBR), which gives an update on fiscal and economic developments during the first six months of the year and progress on implementing the 2024 national budget.
This column analyses the MBR, mainly focusing on budget performance, public debt, macroeconomic performance, social protection, and Vision 2030.
Budget performance
The national budget underwent a significant reconfiguration following the introduction of new monetary policy measures by the Reserve Bank of Zimbabwe (RBZ) in early April 2024.
This transition from the Zimbabwe dollar (ZWL) to the structured currency termed Zimbabwe Gold (ZiG) led to a substantial reduction in the nominal size of the approved budget, from ZW$58,2 trillion to ZiG87,9 billion, as detailed in the chart below.
By the end of June 2024, the total unaudited expenditure and net lending were estimated at ZiG38,9 billion.
Revenue collections during this period amounted to ZiG36,5 billion, resulting in an overall budget deficit of 5,9% (ZiG2,3 billion). Notably, 92,9% (ZiG33,9 billion) of the total revenue collected was from tax heads, while 7,1% (ZiG2,6 billion) was from non-tax revenues.
Efficient budget utilisation by government ministries, departments, and agencies (MDAs) is crucial for national financial health.
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The overall utilisation amounted to 44,2% of the approved budget allocation. However, only nine out of 39 MDAs had expended at least 50% of their allocation.
This highlights the urgent need for all MDAs to be diligent in their spending, ensuring that every dollar is used effectively and for the benefit of the nation.
While the top 10 spending votes, as shown in the figure above, are critical to national development and growth, it is imperative to note that most of their services do not directly impact the livelihoods of Zimbabwean communities, contrary to the aspirations of inclusive economic growth underpinning Vision 2030.
For instance, it is worrisome to note that the Ministry of Public Service, Labour, and Social Welfare only utilised 6,8% of its allocated resources. Yet, this ministry is responsible for social protection services.
Macro-economic performance
In January 2024, authorities projected the national output (GDP) to grow by 3,5% in fiscal year 2024, a projection that has now been revised to 2%.
The downward revision is attributable to the El Niño-induced drought experienced in the 2023/24 cropping season. The drought significantly subdued the agricultural sector.
This sector directly and indirectly sustains at least 70% of the total population and contributes more than 10% to GDP. The underperformance of the agricultural sector also exerts enormous social pressures as food becomes scarce and unaffordable.
The fiscal space is constrained by a plethora of factors, including, among others, burgeoning debt and debt servicing costs, increased cash dollarisation, currency pressures, rising poverty and inequality, high taxes, weak fiscal mining regimes, unsustainable tax expenditures, deepening informality, high energy prices, and electricity shortages.
Be that as it may, the migration from the Zimbabwe local dollar (ZWL) to a structured currency termed Zimbabwe Gold (ZiG) has helped clamp currency volatility and subdue inflationary pressures in the second quarter of 2024 (2Q24).
In 2Q24, monthly ZiG depreciation averaged 1% relative to 34,7% ZWL decline in the first quarter (1Q24). As a result, monthly price inflation plunged, averaging -1,2% (deflation) in 2Q24 compared to the blended monthly average of 5,4% in 1Q24.
Generally, low inflation contributes to economic stability, encourages savings, investment, and economic growth, and helps maintain international competitiveness.
Although the domestic economy was resilient in the first half of 2024 (1HY24), the balance of economic outlook risks remains significantly tilted to the downside.
Domestically, the electricity production deficit and prolonged electricity load-shedding will persist for most of 2HY24. This is attributable to lower-than-normal rainfall in the 2023/24 season, which reduced Kariba dam's live water levels for hydro-production.
Also, despite adding two new plants with a combined installed capacity of 600 megawatts at the Hwange Thermal Plant, some existing thermal plants are now unreliable due to aging.
Again, El Niño drought effects will likely reduce the availability of staple maize, thus exerting enormous pressure on local food prices, imports, government spending, local currency, and headline inflation.
Moreover, taxes like the 2% tax on electronic transactions will continue to sustain the high cost of doing business, reduce consumer spending, and fuel informality.
An informal economy is cash-based, thus promoting corruption and illicit dealings and rendering fiscal and monetary policies ineffective. From the external front, widening global geopolitical risks will continue exerting pressure on global supply chains, global prices (mineral, food, fuel, and fertilisers), and international cooperation.
All these have a bearing on the national budget, the value of ZiG, inflation, business investment, and aggregate consumer demand.
Public debt
The latest 2024 Mid-term Budget and Economic Review show that the Treasury spent ZiG38,9 billion in the first six months of 2024, resulting in an overall budget deficit of 5,9% (ZiG2,3 billion).
This deficit explains the jump in public debt, particularly domestic debt, which increased from 38,4% (US$8,1 billion) of the total public debt estimated in Dec 2023 to 41,3% (US$8,7 billion) in June 2024.
The government undertook accelerated, budget-financed infrastructure projects like road construction, as indicated by the responsible ministry's spending a staggering 244% of its total Vote in only half-year. At more than US$21 billion, total public debt is now unsustainable. It constitutes 96,7% of the national output (GDP), contrary to the 70% threshold in the Public Debt Management Act.
Again, at least 95% of total debt stock is denominated in foreign currency, posing a significant risk to the local currency's stability since more ZiG funds must be set aside through the national budget for forex interest payments.
This depicts a worrisome trend, as unsustainable fiscal deficits and a high public debt stock caused by fiscal indiscipline make Zimbabwe highly susceptible and unable to respond quickly to adverse shocks such as currency fluctuations, natural disasters, financial market volatility, and terms-of-trade shocks.
These shocks impact budgets (limited fiscal space), destabilise local currency, fuel inflationary pressures, and collapse business predictability.
Also, rising public debt will jeopardize service delivery as more resources must be earmarked for debt servicing costs instead of strengthening social safety nets amid frequent climatic shocks.
Social protection
The 2024 MBR shows that the Ministry of Labour and Social Welfare, an arm of government with statutory responsibility for the protection of vulnerable populations, has only utilised 6,8% of the allocated budget of ZiG243 million at a time when people are in abject poverty and chronic food shortages.
Undeniably, the state of social protection in Zimbabwe is deteriorating. Further worsening this position is the fact that Zimbabwe is grappling with an economic dilemma characterised by high levels of formal unemployment, chronic poverty, and inequality.
The El Niño-induced drought has brought additional strain and suffering to the people. It has also compelled the government to declare 2024 a State of National Disaster.
As a result, 7,7 million people are food insecure, with six million in rural areas and 1,7 million in urban areas.
Towards vision 2030
The attainment of Vision 2030, alongside the National Development Strategy 1 (NDS1) (2021-2025), depends on the effective allocation and utilisation of public resources.
However, trend analysis shows that Zimbabwe is grappling with many challenges that inhibit effective domestic resource mobilisation.
These challenges include chronic corruption by public officials, illicit financial flows (IFFs), and unsustainable public and publicly guaranteed (PPG) debt.
A recent 2023 audit report from the Office of the Auditor-General (OAG) revealed massive resource leakages arising from unsupported, wasteful, and unreconcilled expenditures, payments made for goods not delivered, and unauthorized borrowing.
Such poor corporate governance systems essentially undermine the efforts to achieve Vision 2030.
The current macro-economic environment, characterised by fiscal deficits, unsustainable PPG debt, vast inequalities, and chronic poverty, further obstructs the attainment of Vision 2030.
Zimbabwe is in debt distress, with debt amounting to US$21,2 billion. Consequently, significant public resources are diverted from improving public service delivery, strengthening social safety nets, and providing sustainable financing for robust economic growth and industrialisation.
Sibanda is an economic analyst and researcher. He writes in his personal capacity. — [email protected] or X: @bravon96.
