The backdrop for this budget presentation by Finance Minister Professor Mthuli Ncube is surely unenviable. Inflation has quite simply defied the minister at every turn, so much so he has decided to give it the silent treatment. The exchange, the underlying cause for inflation has also taken unkindly Mthuli Ncube’s ideas and it too has pushed higher and higher. Temporary relief as people were able to queue for hours on end for their cash instead of paying a premium for it. How long can that last? The economy that the minister had forecast will grow is expected to decline by between 3 and 7% this year and he has already started revising downward his growth projections for 2020. Zimbabwe is in a quandary. But can the 2020 budget bring any hope?
Each day a piece of grim news is added to the already grim economic outlook. There is so much that needs to be done in Zimbabwe. What isn’t in tatters? Probably just the politicians’ new vehicles and their travel allowances. The budget requirement proposed at $112 billion ( approximately US$7 billion at the interbank rate) is a tall order. The fact that the requirement is heavily skewed towards Defence ($25 billion) and Home Affairs ($32 billion) which combined take up a full 50% tells us that we likely not going anywhere fast. Critical sectors such as Health ($18 billion), Agriculture ($14 billion) and Industry ($6 billion) combined only taking up 34% of the requirement. Numbers like this suggest that this budget may be dead on arrival.
What Zimbabwe needs
What Zimbabwe needs most is investment. Infrastructure investment to be exact and it need not be foreign but it needs to be done. Our greatest needs sectors of Health, Agriculture and Industry all could do with a major boost to infrastructure. However, the government’s spending on infrastructure leaves a lot to be desired. It is extremely difficult to convince the external investor when there is low domestic investment. Both Ethiopia and Rwanda grew on the back of large domestic investment infrastructure, you don’t just wake up producing cars and smartphones.
What will Zimbabwe get?
This is the question on everyone’s lips. What will the country’s most popular briefcase hold? The government has been issuing Treasury Bills quite consistently of late with long-duration ones such as 365 days going unsubscribed and being reintroduced as 182 day Bills. This suggests that the government may be a little short on cash so a tax hike of some sort would not be a surprise. It’s been a year since the Intermediated Money Transfer tax was introduced and despite its early superstar status which propelled the government into surplus, inflation has proved stronger. Another thing to look out for will be the details, if any are provided, on Smart Agriculture. While there was much debate over the success and viability of its predecessor Command Agriculture the requirement for a revamp in our agriculture is undeniable. With Local Government ministry requirement of only $9 billion, we are safer not expecting any major though desperately required changes in infrastructure.
Zimbabwe budget deficits as a percentage of GDP
The big thing to look out for is how we expect to finance all the expenditure we commit to. The budgets the 2017 and 2018 budgets ended the years on deficits of 11% of GDP. The good professor has spoken a lot about fighting the budget deficit but this doesn’t look like it will be something he can overcome. However you look at it, the financing of the budget is key. No multinational credit support means they will have to dig deep. Digging deep has in the past resulted in digging citizen’s pockets. That or creating more money which has brought us into these questionable time where electronic money and scarce paper money have two different values.
Tune in today at 1445 CAT from your platform of choice as the 2020 budget for Zimbabwe is presented. We will have highlights for you as well as analysis of some of the sticky points going forward.
