On the 27th of February 2019 Finance Minister Mthuli Ncube gave us a report on the progress of government reforms and policies. The report covers many issues to do with the economic situation. The report also delves into some areas that are not directly related to the economy but do have a bearing on the attractiveness of Zimbabwe as an investment destination. For those who can recall, the situation is somewhat reminiscent of 2008 when then Reserve Bank Governor Gideon Gino was making announcements and policy directives for almost all arms of government, even though there were officials appointed for those positions. None the less the report has interesting highlights for us.
The report firstly looks at GDP growth expectation for the country. 2019 GDP growth rate is expected to be 3.1% down from a 2018 estimate of of 4.1%. The biggest loser as a sector was agriculture which after a below average rainy season was expected to grow only 3% down from an estimated 12% in the previous year.
Fiscal consolidation was the next stop in the report as the minister presented the progress of government on reigning in expenditure as well as expansion of the revenue base for government. Firstly government borrowing was clipped in the wings by stopping the issuance of further Treasury Bills as well as the Reserve Bank overdraft facility which was overdrawn without parliamentary approval and was quite topical when the Parliamentary Portfolio Committee on Finance questioner the Reserve bank governors.
The government wage bill has long been a contentious issue with varying reports saying as much as 87% of government recurring expenditure was going to wages. This coupled with the continuous domestic borrowing did not bode well. The report announced the retirement of 3188 youth officers who previously cost the government of Zimbabwe $1259260 per month ($395 per officer). In addition to this the reduction of executive salaries in government by 5% was also cited as a measure but no indication was given as to its impact on the government wage bill. The change in the calculation method for bonuses to exclude allowances and benefits resulted in saving $75 million dollars on bonuses in December 2018.
The Intermediated Money Transfer Tax, otherwise known as the 2% transaction tax was the highlight here. It brought increments to the tax revenue for government with $52.5 million, $103.8 million and an expected $98.5 million in November, December and January respectively.it is expected to add 600 million to government revenue in 2019. Sadly the report lacked information on other key contributors to government revenue such as corporate tax, PAYE, VAT and customs duty to understand how we are truly performing .
The graph paints a fairly confusing picture as government expenditure looks to have an erratic pattern. However true to the ministers claims the government has proven cash positive in the previous two months perhaps signalling a return to the Tendai Biti GNU era principle of cash budgeting.
The minister again made his assertion that inflation is expected to slow down to below 10% in the year 2019. Unfortunately the minister didn’t provide much pointing to the fact. The developments on the ground for now show the contrary. On the upside the containment of of money supply growth is a positive that has been noted since October 2018 and this is the best inflation fighting thus far. The report also made mention of the currency reforms with the shifting of the exchange rate peg. Whether it is a move towards liberalization is not made entirely clear.
Doing business reforms
The report also focuses on reforms targeted at the ease of doing business in Zimbabwe. Namely in the area of starting a business and investment approval. The introduction of Zimbabwe Investment Development Authority to fasttrack investment approvals to 1 day is noteworthy. In the ease of doing business report Zimbabwe’s worst performance was noted in the area of enforcing contracts and no measures have been mentioned to address our biggest problem when it comes to the ease of doing business.
Institutional and political reforms
A host of socio-political reforms are mentioned in the document as well. The repealing of the Public Order Security Act and AIPPA which were seen as being contrary to freedom are included. As well as a Cyber Protection, Data Protection and Electronic Transaction Bill that will bring areas of electronic communication, payments and digital data into the law. The Police act which will see the Zimbabwe Republic Police be rebranded and reformed into the Zimbabwe Police Service which will be more focused on public protection according to the report. The citizenship law of the country is also mentioned in the report as they seek to allow those who are citizens by birth to hold dual citizenship.
The report touches on the planned sale of State Owned Enterprises and goes into detail on the reform of others. The government expects to realize an estimated $350 million from the sale of stakes in Tel One, Net One, Telecel and the POSB. Other reform plans are mentioned in passing.
The effort is there, the fundamentals on the ground have not quite responded. Small victory in reducing parallel market rate which peaked at 4.15 can be drawn as one of the few positive results in the report. Certainly our government has curtailed borrowing in the recent past, this should certainly be another cause for celebration. That this report comes almost 6 months after President Emmerson Mnangagwa took office is no coincidence. While the report focuses a lot on the efforts government has made it gives us preciously little information on the results of said efforts. And if we are being honest with ourselves it is results that we need.