Zimbabwe Economy: The good and bad of 2019

Prof Mthuli Ncube

As the curtain comes down on 2019 and we await the New Year, it is critical to reflect on the path the country’s economy passed through in the past 12 months.

It was not an easy road for Zimbabweans, but the authorities did their best in trying to put the country’s economy back on track.

When Finance and Economic Development Minister Professor Mthuli Ncube accepted the job as Finance Minister, he faced the daunting task of crafting a recovery plan.

With his impressive CV: former chief economist and vice president of the African Development Bank and lecturer at the London School of Economics and Wits Business School in Johannesburg, he was considered the right person that could help the country fix its economy and achieve upper middle-income status by 2030.

Although things appear far from rosy, it is wise to accept the job the Second Republic is doing to turn around the economy.

The professor admitted he is faced a mammoth task.

“It’s a very challenging job. You have to understand complexities and be able to take things apart and understand how everything works,” he said.

In the first nine months of the year, challenges related to price increases, while fuel and foreign currency shortages made it difficult to reach higher levels of growth.

Agriculture, which used to be the mainstay of the economy, and experienced a high growth rate of 12 percent in 2018, buoyed by cash crops and livestock production, however, saw some losses in grain yields in 2019 owing to late and below average rainfall patterns, the high cost of inputs and disease outbreaks.

As a result, the sector grew by a modest three percent.

The mining industry continued to grow significantly in 2019 driven by major minerals like gold, platinum, diamond and nickel.

This is despite the risk the country faced, mainly related to foreign currency.

The revival of the manufacturing sector looks positive, reflecting some benefits from ongoing ease of doing business reforms, new investments, improving aggregate demand and rekindling of business confidence.

In 2019, the sector grew by about 2,5 percent, taking cognisance of drawbacks from instabilities experienced during the last quarter of 2018 and January 2019.

As a result, overall economic performance in 2019 looks positive at a modest 3,1 percent, with much scope for improvements in the coming year, as ongoing policy reforms and anticipated external support will boost the economy.

The country should note that a key objective of the Transitional Stabilisation Programme (TSP) and the 2019 National Budget was fiscal consolidation through containment of the fiscal deficit to sustainable levels.

In the year under review, this was attained through broadening of the revenue base, including curbing leakages and expenditure containment.

To date, Government has made progress in containing expenditure in the following areas:

Treasury Bills

The unsustainable practice of financing the fiscal deficit through TBs and RBZ accommodation has been discontinued.

Government stopped the issuance of additional Treasury Bills at the end of October 2018, except roll overs. This has ensured that Government spends within its means and within the Budget.

Public wage bill

In the same period, Treasury successfully retired 3 188 youth officers in accordance with Cabinet’s decision of December 5, 2017.

This made it possible to rationalise posts in the public service, and address duplications of functions. Additionally, Government effected a five percent salary cut for senior Government officials from the level of Principal Directors and their equivalent grades up to the Presidium at the beginning of the year.

As part of widening the revenue base, the Government introduced a two percent tax replacing a previous five cents per transaction in October 2018.

As of January 2019, Electronic Transactions Tax raised US$98,5 million with the aim of raising US$600 million at the close of this year.

Gross collections for the Third Quarter (Q3) of 2019 were $6,59 billion against the targeted $6 billion, thereby surpassing the third revised set target by 26,55 percent.

Compared to the same period in 2018, Gross Collections grew by 413,66 percent from $1,28 billion collected during the Third Quarter of 2018. On the other hand, net collections recorded a growth of 349,17 percent from $1,19 billion that was collected in the same period in 2018.

The positive variance is attributed to both inflation and Zimra’s voluntary compliance and enforcement strategies.

Major contributors to revenue were Individual Tax, Company Tax, VAT on Imports, Excise Duty, Dividends, Fees, Interests and Remittances (DFIR), Withholding Tax on Contracts and Tobacco Levy.

On the other hand, the year 2019 saw the introduction of a number of Statutory Instruments (SI) (SI 142 of 2019, SI 212 of 2019 and SI 213 of 2019) in a bid to stabilise the economy.

The SI introduced the foreign exchange rate between the Zimbabwe dollar and the United States dollar, the abandonment of the multi-currency regime, the criminalisation of transactions in foreign currency and the setting of penalties for individuals and entities who trade in foreign currency.

The review reaffirmed Government’s commitment to implementing the “Austerity for Prosperity” which was rephrased to “Building a Strong Foundation for Future Prosperity”.

Prof Ncube revealed that he has revised the 2019 National Budget by 50 percent upwards.

For 2019, Government had set an initial budget of $8,1 billion with tax collections suiting 74 percent of the total expected expenditure, about seven percent of the budget being matched by grants and the difference which is an equivalent of circa $1,6 billion was categorised as a budget deficit and would have been covered through borrowings from the private sector.

It was not an easy road for the country, but many remain optimistic in the coming year.

In his 2020 National Budget presentation, Prof Ncube said Government expects the economy to recover swiftly from the -6,5 percent projected this year to three percent growth in 2020.

He said that the growth will be driven by better rainfall which will boost agriculture output by five percent and improved electricity generation at Kariba Power Station.

Treasury says growth will also be supported by improved macro-economic stability, recovery in aggregate demand, increased foreign currency availability and better business confidence.

Tax and non-tax revenue collections are projected to be $58,6 billion while expenditure is budgeted at $63,6 billion, leaving a budget (fiscal) deficit of $5 billion.

Despite the hardships Zimbabweans are facing, the country should remain optimistic and united to strengthen the economy.

Together, Zimbabweans will achieve the country’s Vision 2030   of becoming an upper middle-income economy. – Herald