‘National Budget must boost production’

Source: ‘National Budget must boost production’ | The Herald December 7, 2016

Business Reporters—

Finance and Economic Development Minister presents the 2017 National Budget in the House of Assembly tomorrow and economists expect decisive action on Government expenditure, corruption and measures to stimulate production.Economic analysts said Minister Chinamasa faces a challenging situation in attempting to balance between ballooning Government expenditure against dwindling fiscal space.

Nevertheless, the analysts expect Minister Chinamasa to juggle between redirecting the economy to production oriented thrust- punctuated by incentives and

conducive business environment contrary to current trajectory leaning on consumption.

Economist, Dr Gift Mugano said the most important issue was the need to accept that there was tight fiscal space.

That there is limited revenue space should therefore influence an incentive based budget that promotes production. Dr Mugano said such incentives should include reviewing fees and taxes economic sectors are paying.

He pointed to the multiplicity of taxes some sectors, such as in mining, have to pay saying they “are too much”, and could be stifling production.

“What is lacking in our economy is production. Productive sectors such as mining are very crucial given their contribution to the economy. Yet the same sector is affected by a multiplicity of taxes and fees.

“Maybe it is time they are reduced especially the Environmental Management Agency fees. It seems like we penalise companies for compliance, yet it is those that do not comply that should be punished,” Dr Mugano said.

Africa University economist Thomas Masese said he expects Minister Chinamasa to focus more on pushing the ease of doing business reforms to enable a conducive environment and ultimately make local producers competitive.

On dealing with expenditure Mr Masese expects the Minister to set parameters where Government takes the leading role in implementing austerity measures.

“Government should lead by example on austerity measures to show that they are serious,” said Mr Masese.

Furthermore, Mr Masese said there was need for policy consistency to punctuate the budget statement while incentives, such as those introduced for exporters, should be reinforced.

The Reserve Bank of Zimbabwe introduced an export incentive scheme of up to five percent to promote the exports targeted at helping sustain the economy’s capacity and ability to generate foreign exchange for domestic and foreign obligations.

The funding mechanism of the export incentive scheme will be through the issue of bond notes to preserve the offshore $200 million counter-cyclical facility that has been arranged with Afreximbank.

Other areas that require attention in Minister Chinamasa’s budget include reducing VAT, which Dr Mugano said was making accommodation expensive in Zimbabwe.

“In Zambia it (VAT) has the same rate, but their currency is weaker than the US dollar, which means it becomes cheaper to go to Zambia than Zimbabwe. There is a very good case to reduce VAT to a nominal value,” said Dr Mugano.

The economists are in agreement on the need to address the dead capital nature of land in the country.

“Land is dead capital and not bankable. The 99-year lease is for commercial farmers not small holder farmers in Chimanimani, for instance. The Budget has been talking about operationalising the commodities exchange which creates derivatives to finance agriculture.

“Warehousing receipt can be used as security by farmers. This method has worked for other countries such as India, Rwanda and Kenya. We need a situation where Government is not the only key funder for agriculture,” he said.

Zimbabwe also needs to start stocking gold reserves, according to Dr Mugano.