Finance and Economic Development Minister Mthuli Ncube faces an unenviable task of performing a balancing act when he presents his 2019 Budget National Statement tomorrow, amid high expectations on the need to bring down a sky-high budget deficit, stabilise the economy and provide convincing roadmap regarding Government plans for currency reforms.
Against tight fiscal space, where recurrent expenditure already consumes over 94 percent of public spending, Minister Ncube is anticipated to announce specific measures and targets designed to cut on public expenditure to avoid fiscal imbalances that have destabilised the economy, but still grow the economy. Domestic debt and major source of the huge market destabilising RTGS balances, generated from unrestrained public spending, stands at 9,5 billion.
Prof Ncube, a banker with experience from his days at the African Development Bank, will announce taxation measures to shore up revenue and spending plans amid ballooning Government debt, an unsustainable budget deficit and unavailability of foreign currency for critical supplies across the economy.
These challenges have been damaging to the economy and Zimbabweans will want assurance that Government has concrete plans to fix the economy and that it is also willing to take the necessary painful decisions, just as it is asking citizens to.
Zimbabweans need assurance that Government can be taken seriously in its commitment to stabilise the economy; stimulate growth and creation of new jobs for millions in need.
Harare economist, Brains Muchemwa, said Government needs to drop the culture of committing to subsidies (such as subsidizing private consumption) and expenditure plans it cannot financially sustain.
“The most important thing is to ensure that the Government does not commit to provide subsidies that it cannot finance in sustainable manner; in a manner that does not bring or compromise its fiscal sovereignty.
“The second thing is to ensure that we should have a very clear roadmap towards a market based exchange rate so that at least we eliminate the distortions that are growing in the economy on account of a fixed exchange rate; roadmap that will restore confidence while at the same time not compromising the social security of the public; it’s a difficult balancing act, but we need a commitment towards a market based exchange rate.
“The Government has to come up with very clear and specific targets-the minister has been very eloquent with regards to revenue side, we are raising taxes, going for people who are not paying taxes and we have put a new law-but there has not been clarity on the exact the benchmarks of what Government is targeting on the expenditure side to ensure that we at least manage our budget deficit,” Mr Muchemwa said.
He pointed out that Minister Ncube will have a tough time coming up with the specific interventions to rein in unsustainable fiscal imbalances and at the same time measures to grow the economy, likely to be targeted in the range of 6 percent annually, given the State is the biggest spender in any economy.
Rather, Mr Muchemwa said Minister Ncube might need to content with minimal growth or even stagnation while seeking to stabilise the economy first and resolving issues around a volatile currency regime.
President Mnangagwa will also be hoping that Prof Ncube’s stewardship of the unstable economy will vindicate his “Zimbabwe is open for business” mantra at a time there has been some air of despair due to the recent momentary rampage in prices of basics and some increasing dissenting voices of his critics. The road ahead for Prof Ncube will be long, winding and bumpy.
Amid calls for reduction in Government expenditure, mostly recurrent, the minister needs a fine balancing act to ensure adequate and sustainable funding mechanism for agriculture, a huge public sector wage bill and ending the crisis in public health care, among the key issues expected to be dealt with.
Much attention will, however, be on how Prof Ncube will deal with the country’s fiscal deficit and critical foreign currency shortages, including the direction Government will take regarding the inevitable need to fund effective and sustainable solution to the currency issues.
Given the foreign currency challenges, there is no sector in this economy which is comfortable with the status quo and Zimbabweans have been buffeted by soaring prices and shortages of some basic products emanating from currency distortions in the market.
University of Zimbabwe (UZ) economics professor and top Government economic advisor Professor Ashok Chakravati said foremost on Minister Ncube’s budget should be measures to address fiscal imbalances.
“Well, we all agree, there is not much controversy, we know there has been a huge fiscal deficit over the last three years and it adds up to more than $6 billion. That is why our RTGS run up to $10 billion . . . that is the problem and the first thing he has to do is to bring the fiscal deficit under control.
“He has already talked about his plans to increase revenue, but what we want to see is (not just increase in revenue) the expenditure control; that is what people want to see so that if we are going to share the pain, we share it all together. So we want to see expenditure cuts of at least $1 billion, and everyone can be happy,” he said.
Prof Chakravati said people were not so much keen on general statements in the budget, but specific targets of what each planned fiscal intervention through the 2019 National Budget will achieve.
“Second issue is to do with all the monetary measures. We have to start looking at how to deal with the whole currency situation, but maybe we cannot (entirely)deal with that in the budget because we have to (first sit down) discuss the issue and agree on the best thing to do. So let him get the fiscal side right so that it provides a good base for the future,” he said.
The UZ economics professor also said the minister will need to increase expenditure on programmes dear to the poor and vulnerable such as education and health services.
As such, tomorrow’s statement will provide treasury forecasts for revenue collection and GDP growth initially given in the Transitional Stabilisation Programme — and is likely to address spending cuts that Government will put in place to deal with its growing budget deficit, which had reached $2,5 billion by end of September and $6,2 billion over the last 3 years.
Education, the public sector wage bill and the crisis in public health care are also among the key issues expected to be dealt with.
Paying debt
Prof Ncube will have to re-emphasise the commitment to continue with the objective of paying off debts that are owed to international financial institutions such as the World Bank and the African Development Bank to restore access to foreign credit. This task can be made easier if he finds a way of dealing with recurrent expenditure, and selling off of State -owned enterprises, relieving the state from traditional but damaging obligations.
Given what Prof Ncube has done in the few months that he has been at the helm of treasury, the market can expect far reaching policy interventions that should help put the economy on sustainable growth path and send the right signals to undecided foreign investors.
While many have been calling for austerity measures, and policies that move away from those of the past, the last few months have shown that most constituencies are staunchly opposed to austerity policies and are only happy if such measures are implemented elsewhere. The 2 percent tax on every electronic dollar transacted, as well as the separation of banking accounts are some of policy interventions that have divided the nation.
Minister Ncube, who foresees growth over 6 percent, the fastest projected growth across the world and forecast among only six countries in Africa, should also provide fiscal measures to boost productivity in manufacturing, mining and tourism to increase exports, generate foreign currency and reduce the import bill.
