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Dr Munyaradzi Kereke Correspondent
Zimbabwe’S fiscal budget has largely remained static at around $4 billion annually, and is seen shrinking further to $3,99 billion in 2016. Revenue performance is seen remaining subdued at around $3,75 billion in 2016, with expenditures targeted at $3,99 billion in 2016. This shrinkage is eroding the power of the national budget as a policy instrument to drive economic growth and development.
A hospital patient in a state of low blood pressure (negative inflation), low pulse (low GDP growth) cannot continue to be asked to fast/go on a diet. What is needed is a stimulus. The fiscal instrument must be expansionary at this stage and not contractionary. The Minister of Finance and Economic Development Patrick Chinamasa must consider a number of options to create and increase fiscal space.
In 2012, the Zimbabwe Revenue Authority collected revenues that were 28 percent of Gross Domestic Product and this performance has weakened to 25,5 percent of GDP in 2015. This clearly means serious leakages, but they can be plugged. The Minister must consider removal of revenue retention by line ministries and Government departments so that all revenues are centralised at Zimra as the agent for revenue collection.
ZIMRA must sweep real-time at the end of each trading day all revenues collected to a central account visible to the Treasury. The current system of Zimra operating and holding funds in many accounts at different banks obscures Treasury’s ability to see the total picture of revenue on a real-time basis. ZIMRA should issue electronic tax registrations to all points of economic activity in the country and each centre (formal and current informal) must account as a revenue centre particularly in respect of VAT, PAYE, and Income Tax. Issuance of such cards is very low cost.
Each card would capture full datasets for each client. There is need to register all landlords and collect rent tax on real estate properties. It is a basic fact that rent is a taxable income but most landlords are going scot-free without paying taxes. Hotlines should be opened for lodgers to register and report on where they are paying rent. A lot of rent income is not being taxed.
Stiff penalties should be introduced for Zimra officials caught entangled in corruption. The envisaged real GDP growth rate of 2,7 percent for 2016, and the 1,5 percent for 2015 (which is likely to come out even much lower to around 0.5-1 percent due to the downward effects of power cuts) are way below ZIM-ASSET targets of 6-8 percent annually.
ZIM-ASSET is achievable. We must not admit failure easily as would be the case if we allow GDP to only grow by 2,7 percent in 2016 as proposed. Agriculture cannot recover if farmers are simply left to the device of private banks. The world over, the farming sector gets special recognition and support from central Government due to the “public good” nature of agriculture as an economic activity.
Government has a moral and constitutional obligation to ensure food security and access to food is a constitutional right which cannot be sub-let for closure by the private sector as the profit motive may shun production under tight liquidity circumstances as are prevailing in Zimbabwe. The $1,7 billion needed for crop and animal husbandry for 2015/2016 is not coming out due to a clear stalemate in the banking sector.
The Hon Minister should, therefore, consider that Treasury, working with Ministry of Agriculture, compiles a register of farmers with irrigation capacity and such farmers to participate in a Government-guaranteed inputs supply scheme. Agro-inputs suppliers release inputs to the targeted farmers. The irrigation capacities neutralise exposure to drought.
The famers then deliver produce directly to a centralised grain account from which Government would market the produce to defray suppliers’ credits, as well as meeting strategic grain reserves requirements. This approach does not require actual spending initially but it enables farmers to produce.
Government must swiftly address remaining concerns on the 99-year lease so that farms can stand as collateral. It must invite agro-processors to partner with the Agricultural and Rural Development Authority and the Cold Storage Commission to produce at vast tracts of land remaining idle. Agro-bills must be issued to the National Social Security Authority and other similar institutions and direct funding towards capitalising production of low-cost fertilizers and other agro-inputs.
A vibrant commodities exchange must be created to increase market confidence for farmers in their assessment of viability, as well as shortening the payment cycles for produce harvested. There should be a re-think in the model of consolidation in the diamond sector as the sector has quick response cycle if carefully realigned.
Rather than designing special economic zones in a geographical sense, Government must identify and target specific industries with the same special economic zones incentives. Industries with high labour ratios could be targeted to create new jobs. There is need to bring more accountability in the energy sector. ZESA, ZETDC and ZPC must account for the tenders that are in excess of $2,4 billion that have been awarded repeatedly to almost the same companies over the past five years and this is still ongoing.
The State Procurement Board must be subjected to a detailed forensic audit. In the interim, regional railway companies must be invited to fill in the gap at National Railways of Zimbabwe through limited contracts, whilst new partners are invited to partner/capitalise the parastatal. Riding on the back of the re-engagement process, Government should float an international bond to raise at least $2,5 billion to augment the 2016 National Budget.
The proposed Capital Expenditure (CAPEX) allocation of $280 million or only 2,6 percent of GDP is dangerously too low to have any meaningful impact on productivity of the economy. This sad reality contrasts sharply with the millions of dollars that are wasted through opaque procurement processes in local authorities and public enterprises.
It is proposed that Treasury creates a special centralised CAPEX Fund into which all local authorities’ Capex components are deposited, as well as Capex for public enterprises. Each institution/local authority will only draw-back (utilise) their Capex funding upon presentation of credible, fairly priced Capex programmes that would pass Treasury scrutiny.
The millions that are currently leaking through corruption and kick-backs would be put to good use through this route of enhanced Capex oversight by Treasury. Necessary statutory changes can be done to effect this. It is estimated that Treasury would be able to exercise this directed Capex orientation programme up to an average of $1 billion annually which is presently leaking through blatant abuses at institutions such as local authorities, the Premier Service Medical Aid Society, ZESA, Air Zimbabwe, NSSA, etc.
The screening and approval of joint ventures and new projects should focus on those that are self-funded. Imports have remained relatively high at between $6-7 billion annually, whilst exports have remained low and shrinking at under $4 billion. For 2016, the Hon Minister sees exports at $3,99 billion against imports of $6,1 billion.
The trade deficit of at least $2 billion is a clear indication that a lot of transfer and remittance funding coming into the country, coupled with smuggling activities, need to be accounted for in a more systematic way. Treasury should create a specific budget for programmes that fight corruption. Anti-corruption laws also need to be tightened and Parliament’s oversight role should be re-bolstered by re-assigning back to Parliament the power to imprison.
Exports growth require that Zimbabwe adopts low cost technologies. Duty exemptions on new, low cost technology set-ups for domestic production would be welcome. This would grow exports. The special economic zones programme should have a bias towards exports. The ideal budget structure for Zimbabwe 2016 should include nominal GDP of $25 billion as this will imply a debt to GDP ratio of under 45 percent.
Fiscal revenue to GDP should be 30 percent or $7,5 billion, fiscal expenditure: $10 billion and debt finance: $2,5 billion (re-engagement must produce tangible inflows). The above will solve the wage bill problem without firing a single soul. The wage bill to total budget would decline to a ratio of 27 percent down from the current 80 percent. It is, therefore, vital that the current budgeting process breaks away from the current “normal” of stagnation and shrinkage to under $4 billion fiscal budgets to a more STRETCH-TARGET formulation.
A child who fits in the same jacket year after year and that for many years cannot be expected to be normal. That the fiscal budget is shrinking must cause serious urge to excel and achieve the extraordinary. Austerity is not the right policy option given where we are. We need a fiscal stimulus.
Dr Munyaradzi Kereke is the Member of Parliament for Bikita West constituency and former advisor to ex-Reserve Bank of Zimbabwe Governor Dr Gideon Gono.
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