Source: Mthuli, Mangudya should contend with being unpopular | The Herald August 3, 2019
Finance and Economic Development Minister Professor Mthuli Ncube on Thursday presented a $10,85 billion Supplementary Budget and the 2019 Mid-Term National Budget Review Statement. Themed; “Building a Strong Foundation for Future Prosperity”, the statement assessed progress towards sustainable macro-economic fundamentals. Through the Supplementary Budget, the Treasury chief came up with measures to protect vulnerable groups, drive productivity and consolidate gains from ongoing reforms. To break down the Budget for our readers, our Deputy News Editor Africa Moyo (AM) spoke to Persistence Gwanyanya (PG), a chartered banker, economist and trade finance specialist, who also founded the Bullion Group.
AM: Briefly, what is your take on the Mid-Term National Budget Review Statement?
PG: While commendable progress has been made in rebalancing the country’s fiscal and external positions so far, there are significant downside risks that need to be well understood and managed going forward. The achievement of a combination of fiscal and current account surpluses in the first half of the year is so far the greatest progress towards achieving local currency, the Zimbabwe dollar (ZWL), stability, which is a precondition to establishing a strong base for economic recovery. Importantly, this rebalance will be anchored by measures to deal with economic distortions relating to mainly fuel and utilities prices. A review of statutory fees, charges and levies to cost recovery levels was also necessary to deal with distortions and support efficient service delivery by Government and its related entities. However, sustaining the progress made so far is not going to be an easy task as the economy faces significant downside risks that actually necessitated the supplementary budget of ZWL$10.15 billion.
With this additional budget, the economy is expected to close the year in a deficit position of ZWL$4.6 billion (4 percent of GDP), from projected revenue and expenditures of ZWL$18.62 billion and ZWL$14.06 billion respectively. This only means the current fiscal consolidation measures in the form of austerity and revenue enhancing measures are still very necessary.
AM: Was this a pro-people budget?
PG: It is clear from the Supplementary Budget that we carry the burden of the past and most of what the fiscal and monetary policies are trying to do is to reverse the economic ills of the past. Policymakers, Professor Mthuli Ncube and Reserve Bank Governor John Mangudya should contend with being unpopular for now as they sort out the economic mess of today. But one thing for certain is that we should not abandon the process, but build on with the progress made so far.
This undoubtedly requires effective communication to build consensus and cohesion in policy formulation and implementation.
AM: Ever since the coming in of a new dispensation, the country has managed to record a budget surplus. Is this not a sign of better things to come?
PG: Whilst the achievement of a primary surplus is commendable, there is still scope to do more in terms of expenditure rationalisation. The progress registered in fiscal consolidation is largely attributable to revenue performance, which surpassed target by 20.2 percent at ZWL$5 billion. However, the under-performance of the expenditures side remains a concern. Total expenditure of ZWL$4.2 billion during the first half of the year represents a negative variance of 15 percent. This is largely attributable to the downward stickness of wages, which suggest the need to focus on senior civil servants allowances, which constitute about 40 percent of employment costs, which in turn contribute 90 percent of total revenue.
Expenditure management will be supported by Treasury’s commitment to judicious issuances of TB and zero recourse to RBZ overdraft window. So far, Treasury has managed to live to its commitment, having only issued TBs worth ZWL$230 million, reportedly to test the market. Consistent with the fiscal policy, the TB issuances were done through the public auction system, which, unlike private placements, is more transparent and allows for efficient price discovery. Also comforting is that after the conversion of the RBZ overdraft of around ZWL$3 billion to long term debt, Treasury has stayed away from Central Bank overdraft window.
AM: Revenue leakages remain a cause for concern. Has Minister Ncube done enough to address this issue?
PG: Given the tight fiscal position, there is greater need to ensure fiscal consolidation efforts are supported by measures to minimise revenue leakage mainly through reigning in corruption. This brings to mind the recent Auditor General’s report, which points to questionable and improper transactions amounting to about ZWL$23.5 billion. From this report, it is clear that there are rogue elements that are bleeding our parastatals and state owned entities, calling for urgent interventions.
This makes parastatals reforms, which have been on the cards for a long time, extremely urgent. What’s comforting is that we have started to see traction in this front with 41 entities undergoing the reform process.
AM: What were the positives on the domestic debt front?
PG: Progress with regards to fiscal consolidation saw a reduction in the domestic debt from ZWL$9.5 billion in 2018 to the current level of ZWL$8.3 billion and we hope this ZWL$1.2 billion legacy obligations in respect of the blocked funds, occasioned by the exchange rate parity (1:1) is not going to derail the progress so far. However, l didn’t hear the impact analysis of this time bond and we only hope and pray that the creditors will cooperate and accept RBZ’s proposal to remit the blocked funds.
AM: Is there enough relief from austerity measures, especially for the ordinary man?
PG: Whilst as ordinary people we expected some significant relief from austerity measures, the circumstances at the moment dictate otherwise. Treasury has remained hard on its taxation stance with only small adjustments on the 2 percentage intermediate tax. The small adjustment to the minimum amount chargeable from ZWL$10 to ZWL$20 and maximum charge to ZWL$15 000 from ZWL$10 000 ably demonstrate this. In fact, Treasury has actually extended this tax to mobile money transfer through agent lines, ostensibly to deal with parallel market for currencies. However, the doubling of the minimum taxable income to ZWL$700 will provide moderate tax relief to the overburdened working class.
It was imperative that, as the nation austere, Treasury beefs up the social safety nets to cushion the vulnerable members of society and help them withstand economic hardships therefrom.
AM: Minister Ncube provided a lot of support for agriculture and social safety nets. Was this a positive development or will it further strain the fiscus?
PG: Following the establishment of the interbank market and subsequent depreciation of the Zimdollar, agriculture support of ZWL$3.2 billion was necessary as farmers earnings were heavily eroded by the ensuing Zimdollar depreciation. However, mechanisms to ensure that this support is not abused, as before, cannot be overemphasised. In these trying times, an additional fund of ZWL$1 billion towards social protection will be well received by the vulnerable members of the society and again we can’t overemphasise the need to guard against embezzlement of these funds.
In view of the Government position to liberalise the fuel sub-sector, which has also seen adjustments of fuel prices in line with the interbank market, an efficient public transport system is also necessary to resolve transport woes. Just some few days ago, the President commissioned some 47 buses and it’s unsurprising that Treasury allocated an additional amount of ZWL$528 million towards public transport system.
AM: Was the hike in electricity a wise move, given eroded incomes?
PG: It was long overdue. Electricity was costing about $0.01c, but imported at between $0.06c and $0.12c per unit.
AM: What is your take on the allocation for devolution?PG: Whilst focus today is to stabilise the economy, we should always try and build productive capacity by investing in capital projects and infrastructure. That is why additional allocation of funds towards these causes is commendable. In line with the Constitution, which says 5 percent of revenue should be set aside for devolution, the increase in the respective amount to $700 million will go a long way in complementing development.
AM: Any other highlights?
PG: Whilst Treasury commits to maintaining dollarisation, it was unmoved on exceptions on the application of SI142/2019 as provided by the Act and as already clarified by RBZ through an Exchange Control Directive. These exemptions will see those earning in foreign currency being taxed in the same currency.
The change of fuel taxation was from a specific tax to an ad valorem tax with petrol and diesel now attracting excise duty of 45 and 40 percent, respectively. Also, suspension of duty on commercial tyres is consistent with the thrust to revamp production.