admincontinent cannot be discounted.
Africa has been setting pace for world economic growth just behind South East Asia while in the same vein leaving Europe to burn following the burgeoning bond yields in Spain, Greece, Ireland and of late Italy.
The traditional source of vote of credit for Zimbabwe is under financial stress which is the transatlantic zone and any innuendo to spell out a significant sum to balancing the budget will be illogical.
Among economic issues to dwell on in the coming budget include the external debt development. Inflation, domestic debt, inefficient public sector, a stubborn current expenditure envelope are also beckoning.
A looming election and constitution-drafting process, unimpressive fiscal developments in terms of revenue collections and an indigenisation policy that has to be understood across the racial and political strata are also on the table.
The lack of fiscal space will cripple the capacity of the Government to fine tune the economy in a desired direction.
This is to be exacerbated by the multi-currency regime currently obtaining in the economy and a strained trade account deficit without capacity to close on the infinite appetite for spending by the Government.
Finance Minister Tendai Biti is expected to deliver the 2012 budget proposals in Parliament probably on November 17.
He is to trade in between political declarations and economic planning, the only fiscal policy in the world to be announced in a dollarised environment. It is a budget that will also be used as a political battleground by the two major political parties in the Southern African nation as the drive to elections gathers momentum.
The nation is eagerly waiting on the envelope size of a budget, which is supposed to support the plebiscite, the constitutional referendum, and above all, economic growth. Anything short of US$4 billion in terms of budget size will not be able to drive this economy, as the demand for limited resources is quite enormous as compared to other fiscal periods.
Zimbabwe’s external debt as at the announcement of the last budget was at US$6,9 billion that translates to 103 percent of Gross Domestic Product. This has continued to worsen the country and sovereign risk, which had diminished chances of securing lines of credit at concessional interest rates.
The regular visits by the Bretton Woods institutions into the country cannot be linked with any possibility of a re-engagement into the club of benefactors for debt forgiveness.
Politics ahead of economic rationality has been allowed to define the status of Zimbabwe amongst developing countries of the world and this is expected to continue in the foreseeable future.
A comprehensive policy approach to solve the debt problem is what is required, if Greece and Italy are on the verge of a significant political shift due to unsustainable debt levels but surprisingly, Zimbabweans are not approaching their debt problem with any sense of urgency.
Accordingly, the 2011 budget should prioritise power, water and sanitation, roads, communication and social infrastructure in housing, health and education. These were the words of Minister Biti in his last budget statement, but it is the same economy that is still struggling to deliver electricity, sanitation and health to the restive populace of the country.
This could be the reason for lack of confidence by the majority in different blueprints that are always churned out.
The central bank remains a missing piece in the equation of the financial service sector, their role of supervision is also scant with both domestic debt and a dysfunctional money market relegating them to a an economic spectator’s role.
There is need for significant recapitalisation of the apex bank, the Treasury boss is certainly aware but the seeming differences between him and the central bank chief will remain a catalyst for slow reaction to the bank’s revival.
This is a central bank who requires not less than US$500 million for it to be well capitalised, not the US$10 million which was last allocated to the bank. It is sincerely a surprising culture by our local economic authorities to set growth targets without solving the debt burden, that is “fantasy economics”. Why acquire a massage chair for your bedroom when you are failing to honour your rental commitments for your landlord? You deserve being chucked out, don’t you?
The mining sector that is a potential boon for this nation remains a disappointing facet of the economy. The sector contributed 4,9 percent of the GDP in 2009 and 65 percent of the country’s exports in 2010.
There is need to improve on the accountability and institutional framework of the industry with the proceeds from gold and diamonds continuously disappointing the market.
Between 2009 and October 2010, gold and platinum prices increased by 45 percent and 54 percent respectively. Royalties collected from precious metals amounted to a paltry US$20,7 million from sales of US$593,8 million. The certification of Zimbabwean diamonds by the KPCS recently is expected to open up the market with an average of US$2 billion per annum in terms of revenues expected.
An appropriate mineral taxation model that benefits the economy is what the needs expects from the 2012 budget, the mining royalties have to be raised to an average of 7 percent as Zimbabwean minerals market is now more open to trading of the special gems.
All illegal extraction of minerals should be brought to an end with an approach of use claims or lose them being embraced. Allegations of politicians being accused of enriching themselves through stranglehold on underutilised claims must not be allowed to continue.
On the inflation front, it remains a very elusive target to end the year with inflation in the range of at most 4,5 percent. There is a possibility of prices breaching the above target mark as utility bills and the volatile exchange rate from a South African perspective.
This is the opportune moment for the fiscal authorities to rein in nflation through sound policy measures such as controlling the expenditure bill which crowds out investment spending.
Current expenditure of 82 percent of the budget is a threat to management of inflation and this might be the reason why Zimbabwean economy will remain fragile.
In the last budget statement, the wage bill as a percentage of the total budget and GDP was promised to be 45 percent and 14,5 percent in 2011 respectively. Minister Biti opined that the medium-term target is to reduce the wage bill to the desired level of 30 percent of the total budget and 10 percent of the GDP.
The looming elections imply the need for a fund to be set up for the event, it will not be making economic sense for a National Budget which is already depressed to cover such a demanding platform.
The continuous underperformance by parastatals and other public enterprises remains a threat to the recovery of this economy. If the Government is to continue bailing out these non-performing structures without a clear roadmap on how the pressured working class is to benefit when they are contributing their income tax will promote informal trading which is an easy source of tax evasion.
If Europe is failing to continue supporting its struggling enterprises given the quantum of resources at their disposal, it becomes a sticky issue to find our fragile economy failing to wean off the “never maturing baby”.
It is time to bring forth a workable plan for Air Zimbabwe without relying on reactionary tactics with each industrial action by the pilots at the only Zimbabwe- based commercial airline. How is the Government expected to utilise the fiscal policy when their hands are already tied with avoidable debts whose size eclipses the total budget?
Christopher Takunda Mugaga
Head of Research
Econometer Global Capital
[email protected]
+263 772 340 353, +263 776 266 062
Online Reporter