In announcing the State of the economy report Finance Minister Professor Mthuli Ncube indicated that the government budget would be increased. Government expenditure was to be increased from expected ZWL$8.1 billion to ZWL$12.2 billion. – a 50 % increment. The so-called austerity period is certainly over.
In increasing the expenditure target by 50% the revenue target was also increased by the same percentage from ZWL$6.1 billion to ZWL$9.3 billion for the year 2019. This revenue target is considered optimistic at best by analysts. Declining aggregate demand in the nation has lead to forecasts of economic contraction in Zimbabwe.
More interesting is the widening of the budget deficit, however. Initial targets had the deficit at around ZWL$2billion and now the deficit target is ZWL$3.3 billion. Without multilateral institution support, there are very few ways to finance this deficit, they may look to treasury bills again. With government domestic debt having grown to around ZWL$10 billion in just over 5 years the trend is of course worrying.
More light will be shed on the budget in the supplementary fiscal policy statement but this news cuts a worrying picture for those who have paid any attention and know why we are where we are. The star performers for government revenue the Intermediated Money Transfer Tax and excise duty on fuel may be looked to again but with problems bedevilling the fuel sector, to the cost of Former energy minister Joram Gumbo’s job make it likely a no-go. The 2% tax has already been touted for so many things including infrastructure, health, water, roads and so much more that it’s hard to believe it can possibly do anything else.
Newspaper reports suggest that South Africa set steep terms for the US$1.2 billion bailout package that Zimbabwe sought from them. The Southern neighbours have asked for bonding of minerals as security and this has not been received well by many. While bonding arrangements are wide and complex the simplest way to understand them is allowing access or control of your minerals for a duration or specified value. Effectively we would be signing away proceeds from minerals which are still among our highest foreign currency earners.
The rest of Mthuli Ncube’s report waxes lyrical about how effective policies have been then going on to lament the runaway inflation, galloping exchange and the deficit. These are of course the very problems the policies were supposed to take care of.