Whilst it is true that a National budget is inadequate to address challenges of permanent and structural nature such as those of Zimbabwe, it is equally true that citizens attach huge significance to it and it’s announcements. The recent streak of events in the National budget space in UK, which cost too leadership jobs, attest to this assertion. In as such it is very important to anticipate citizens’ expectations from the budget and also manage them.
Given the current situation, the 2023 budget is expected to balance growth and stability. Whilst we have achieved remarkable growth – 7.8 in 2021 and 4.6 percent in 2022 projection -we have sacrificed stability, with inflation having peaked at 285 percent in September 2023. Reasonably so, because this growth was mainly driven by, among others, construction especially infrastructure development, which by its very nature requires huge capital and foreign currency. Because of limited access to international financial markets for long term capital, infrastructure was mainly funded from the budget, which is not an ideal funding option.
Our unique circumstances have meant that we had to sacrifice, but as expected, that was not without consequences. Instability was the consequence. This notwithstanding, we managed to record significant progress in infrastructure development mainly build roads, dams and airports with our own currency. What’s comforting is that these developments are permanent and instability therefrom can be addressed.
Now, it’s time to rectify the situation by giving more focus on stability. Unsurprisingly, Treasury instituted value for money processes to minimise the distablising effects of Government procurement processes. These processes are expected to minimise the impact of ZWL funding for projects on currency volatilities and inflation. This will not be achieved by delaying or postponing payments but always ensuring that the Government payments for services and products at the “right” price. The right price is the one that does not afford the beneficiary the flexibility to participate in the alternative market.
You may want to agree with me that the ZWL has been stable for the greater part of the second half of the year, which attest to the potency of the current policies. Now, we expect the budget to come up with measures that entrench stability. Clearly, these measures should be centered around judicious management of financial resources. This will make the work of RBZ to contain currency stability easier. We need to continue leaving within means and remain growth rather than consumption focused.
As we undergo reforms, we should not forget those on the lower end of the economic ladder. As such, there is need to give more focus on social goods mainly healthcare and education as well as social protection. The current state of our healthcare systems needs urgent attention. We need to attend to basics, whilst creating an environment for attraction of long term capital needed to rebuild the healthcare system. Incentives for investment in this sector are also key.
It will be amiss if l don’t mention the need to continue improving the welfare civil servants. The economy is the people and the people are the economy. Whilst Treasury is commented for having done much with a current limited resources, it is advisable for Government to continue improving the welfare of its employees. The private sector is similarly advised to do same.
I received a lot of feedback from the market on the IMTT on domestic forex transaction. The market generally holds the view that at 4 percent, the tax is too high and may be detrimental to the flow of forex to the formal system. Whilst the idea of taxing domestic foreign currency transactions higher than local currency transactions is well understood-to discourage forex usage domestically and therefore reduce risk of redolloration, the market is of the view that the IMTT tax may need to be revised down to slightly above the ZWL IMTT tax of 2 percent, if it’s to effectively achieve the two objectives l mentioned earlier. This could be the right time but maybe the Minister has other views.
Importantly, Treasury is advised to pivot more towards increased ZWL preference as a way of increasing the demand for ZWL, which is key in supporting its stability. It’s good that we have been experiencing stability for a long time now, but we now want to focus on making it permanent or durable. By pivoting more towards ZWL taxes and duties, Treasury will send a clear message that ZWL is Government’s preferred currency, which signals the same to the private sector. We need to inculcate and support a culture of ZWL at all levels. Needless to mention that dollarisation, this will signal stability in the economy and create a new culture where ZWL is a preferred currency for transactions.
Balancing stability and growth also require a fair consideration for growth. Being an agriculture dependent economy and faced with high input costs, there is need to support farmers. Given the slow progress on agriculture support programmes there may be need to support farmers of especially grain with back pay, to supplement the resources from sales of grain to GMB this year. This will capacitate a lot of self-funded farmers and reduce the risk of huge dependence on Government support programmes.
Treasury is advised to continue using the incentive system to support various sectors of the economy such as tourism, mining and infrastructure development.
More importantly, l take the view that Treasury should concentrate more on sound policies that attract and investment as opposed to the resource allocation function.
Persistence Gwanyanya is a member of the RBZ Monetary Policy Committee, Vision Consultant and Futurist of Bullion Group. For feedback WhatsApp +263773030691