adminKudzanai Gerede Business Correspondent–
As the nation draws closer to the much anticipated 2016 National Budget to be presented by the Minister of Finance and Economic Development Patrick Chinamasa next week, the country should brace itself for budget that attempts to strike a balance between austerity measures aimed at curbing recurrent expenditure and concrete actions that will put the economy on a firm footing of recovery and growth.
Stifled by declining revenue inflows and a bloated wage bill with high operational costs which account for close to 83 percent of government revenue, the continuous closure of companies due to viability challenges and competition from import products continue to deepen an already dire economic outlook.
Problems are compounded by the decline in global commodity prices for Zimbabwe’s main mineral exports gold, platinum and diamond coupled with the late start to the rainfall season which is pointing towards yet another dry agricultural season which will yield catastrophic results for the country’ s agro-based economy.
The international financial institutions remain reluctant to offer new lines of credit as the country’s external debt is now hovering at approximately US$10 billion despite having given an olive branch when the Finance Minister recently presented a convincing national debt clearance strategy in Lima, Peru which entailed the country to clear its debt by April 2016.
With a myriad of challenges facing Treasury ahead of the budget presentation, it already point to the fact that the budget will be lean and will avail little in monetary terms but will surely seek to negotiate economic strategies that will spur productivity and ultimate growth.
Zimbabwe Revenue Authority has already missed its first half revenue targets by 6 percent after collecting US$1,66 billion from the initial US$1,76 billion target and the Finance Minister in his presentation at the pre-budget conference in Victoria Falls pre-empted that there were limitations in the fiscal space owing to high recurrent costs. This has seen 2015 growth targets being reduced to 1,5 percent from earlier projections of 3,7 percent.
Our failure to meet external financial obligations translates to the fact that most of the country’s development projects funds will have to be sourced internally through local banks which are already choked by the liquidity constraints to spearhead the development agenda in the absence of external funding.
The banking sector will be crucial in igniting economic activity into the moribund economy as most companies need capitalisation including recapitalisation of the Reserve Bank of Zimbabwe such that it plays its Lender of Last Resort function. This is how ever going to need restoration of confidence into the sector.
The country’s banks need high capitalisation levels to fund the economic targets of 7,3 percent aimed in the ZIM-ASSET, and analysts say such a huge growth rate projection requires an investment of around 30 percent of GDP.
“This budget has to give prominence to issues of confidence,” economist, Mr Trust Chikohora said. “Currently investor confidence is so low, so the budget should come up with measures to inspire confidence, look at the banking sector and the ZSE. There is need to attract foreign investment to mitigate liquidity constraints,” he added.
On the yawning trade deficit currently at US$3 billion Mr Chikohora said there should be incentives for exports to cushion the losses in the export sector instead of imposing tax on exports as the case with exportation of animal hides enunciated in the Mid-term fiscal policy statement.
“We have to increase our revenue base we have to bring into the tax net other players who haven’t been paying tax and find innovative ways of widening Government revenue base,” he added.
Government has been missing on a considerable margin in unmet tax obligations from its mal-administered parastatals who haven’t been honouring statutory obligations including paying tax as was revealed in the Auditor-General’s report.
Another critical aspect economic analysts have pointed out is the country’s level of competitiveness which still needs to be looked at. Recently the country got its first ever Zimbabwe National Competitiveness Report which highlighted key areas that either hindered or promulgated competitiveness. The budget is expected to derive contents from the findings which will be essential in promoting local products at international markets.
Local products have struggled to compete at a local level owing to high costs of doing business and manufacturing in the country. The Confederation of Zimbabwe Industries Manufacturing Sector Survey showed that the country’s manufacturing sector slumped 22 percent down to 34 percent capacity utilisation from 57 percent in 2011.
Grain Millers Association chairman, Mr Tafadzwa Musarara also bemoaned the competitive edge of import products in the country and called for measures to be put in place to level the playing field between local processors and importers so that local products remain relevant on the local market.
“Government should level the playing field because the cost at which we manufacture our products in the country cannot be compared with that in our neighbouring countries because we have a strong currency,” he said. The energy sector, he said, will be a determinant factor in the whole economic expansion drive.
“This budget should take priority of macro-economic cost drivers and with a clear bias towards the energy sector, electricity in particular. Let the electricity issue be dealt with then we can see industry grinding once again. The cost of fuel should be in tandem with regional index such that every industrial output is competitive and with that the budget will have killed as many birds with one stone,” he added.
The Mining sector is also expected to be under the spotlight in the minister’s budget with analysts calling for the speedy finalisation of the consolidation of Marange diamond companies where Government will have a 50 percent stake. The move is expected to revamp mining activity and expand on revenues with efficient means expected to capacitate the acquisition of new technologies for mineral exploration.
Another economist, Mr Vince Museve was critical of past budgets and hastened to note the need for the budget to avoid anchoring on increasing the Government’s revenue base through heavy taxation of already struggling businesses as has become the norm but to create business friendly policies to allow expansion of businesses which will yield revenue for Government in the mid to long term.
He argued that for any sustainable budget to deliver the country from its economic doldrums there has to be sincerity in cutting the bloated wage bill, which make up the chunk of Government’s 92 percent recurrent expenditure, or else risk negative growth next year.
“Clearly the revenue base is decreasing, so I see this budget not talking about growth but a budget about revenue increase. There is need to decrease government expenditure because surely the economy is shrinking having recorded 1,5 percent growth they will definitely be talking of negative growth next year,” said Mr Museve.
The 2016 National Budget comes at a time when the global economic outlook is uncertain, with the strengthening of the US dollar against major currencies slowing up global trade and unstable financial markets leading to a general cutting down on spending.
Industrialists have called for intensive consultations to ignite the manufacturing sector, as a strong industrial output holds the key to significant growth of the GDP which currently sits at single digit figures (less than 9 percent) when other countries like Nigeria, South Africa, Egypt and Sudan have GDPs with three digit figures.
This will be a Herculean but realistic task for the Finance Minister, working on a lean budget and try to come up with measures to expand a contracted economy: His, will be a case of negotiating a dollar out of 15 cents.
Online Reporter