Zimbabwe ditches austerity and warns corruption is killing growth

Finance minister Mthuli Ncube said  Zimbabwe will ditch its crippling austerity measures and forecast 3% growth in 2020 after a projected 6.5% contraction in 2019, its worst downturn in a decade that saw increased public protests and widespread shortages.

Presenting his proposed ZWL$63.6bn budget for 2020 in parliament in Harare on Thursday Ncube said the economic rebound was based on expectations that Zimbabwe would record a better rainfall season, as well as improvements in electricity supply and infrastructure development.

“Economic recovery of up to 3% is projected in 2020, primarily premised on key assumptions that include a better rainfall season supported by increased support towards rehabilitation and development of irrigation infrastructure to sustain agriculture activities,” he said.

He said he expected agriculture to grow by 5% while mining was projected to rise by 4.7%.

Ncube said the country’s budget deficit was projected at 1.5% of gross domestic product (GDP) in 2020 from 4% of GDP this year.

The finance minister announced tax cuts including a marginally reduced value added tax (VAT) on non-luxury goods of  14.5% from 15%, effective in January 2020, to help Zimbabwe’s millions of poor and boost demand.

Corporate income tax will be lowered from 25% to 24%.

Ncube announced tax incentives for companies that create jobs to ease the country’s unemployment rate of more than 90%.

“The country’s economic challenges are surmountable provided we put our heads together as a nation and continue taking bold and decisive steps to open up and grow the economy,” he said. “This includes seriously pursuing policies that enhance production.”

The finance minister removed grain subsidies from  January and millers will be free to import maize.  The move may prove unpopular as it could drive up prices of  staples mealie meal, cooking oil and bread.

Ncube said monthly inflation is expected to fall to single digits in the first quarter of 2020 on the back of commitment by the RBZ to implement a “tight reserve money targeting framework”.

While the government has stopped publishing month-on-month inflation figures, the International Monetary Fund estimates Zimbabwe’s inflation rate at more than 300%, making it the second-highest in the world after Venezuela.

Ncube said Zimbabwe’s government must fight corruption to develop its economy. He allocated resources to  establish  a centralised internal audit unit as part of  a national anticorruption strategy. He also called for a law to protect whistle-blowers.

“Government is losing resources through corrupt activities. In addition, corruption in some parastatals and local authorities has compromised some desired development outcomes. There is a risk that some development partners may withhold funding for critical programmes and projects,” he said.

Commenting on the budget, Harare-based economist John Robertson said that while the budget was “well presented”, the impact of the measures will most likely be felt after 2020.

“The longer-term view is now looking better, but 2020 still seems likely to be a difficult year. Almost all the support measures mentioned will take time to build up momentum and if they do become effective, their impact will most likely be felt during or after 2021, not in the coming year.

“Investors cannot be attracted while electricity demands cannot be met and the quickest of the power station projects, extensions to Hwange Power Station, requires another year,” he said.

Former finance minister and MDC Alliance legislator Tendai Biti said the budget was  a reflection of hyperinflation. He called it an “illusion” and “underachievable”.