Mthuli battles to stay the course of stability

Golden Sibanda

FINANCE, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube, presented a $58,2 trillion 2024 National Budget, as he battled to align the expected tighter economic situation next year with maintaining the obtaining relative economic stability, driving and sustaining modest growth and limited fiscal space.

The 2024 budget framework reflected anticipated constrained revenue space due to the expected negative impact of drought caused by the El Nino weather phenomenon, which will cut down the country’s economic growth from 5,3 percent projected for 2023 to 3,5 percent next year.

There was little, though, in his budget in terms of measures to improve the situations of businesses burdened by a multiplicity of high taxes and punitive costs of credit from local banks, both in foreign and domestic currency terms.

Also, after President Mnangagwa recently extended the tenure of the multicurrency regime beyond 2025, keeping it in place until 2030, the Minister’s budget statement was silent on any hint of the de-dollarisation roadmap.

Speaking to ZTN Prime after his presentation at the new Parliament building in Mt Hampden yesterday, Mthuli said the budget reflected the realities on the ground where constrained fiscal space faced huge expenditure demands at a time when Zimbabwe’s borrowing capacity was limited.

He thus made several new tax proposals to redistribute wealth in the country and raise resources to support key areas of the economy such as infrastructure development like roads and the provision of basic social services such as clean water.

Among the tax measures in the budget, the minister reviewed the tax-free threshold to $750 000 per month or $9 000 000 per annum and adjusted the tax bands to end at $270 million per annum, above which tax will be levied at a rate of 40 percent, with effect from January 1, 2024.

Mthuli proposed to review the local currency tax-free bonus threshold from $500 000 to $7 500 000, with effect from November 1, 2023.

He expanded the scope of the surcharge on high-value imported vehicles from 30 percent for cars valued above US$120 000 to between 40 and 50 percent for vehicles worth over US$300 000 and more than US$700 000 given the growing number of such purchases. This over and above import duty levied on the top of the range vehicles.

To raise resources to finance road infrastructure, the minister reviewed the Strategic Reserve Levy by US$0,03 and US$0,05 per litre of diesel and petrol, respectively, with effect from January 1, 2024.

The Treasury boss said the 2024 National Budget reflected the reality that Zimbabwe will need to raise financial resources internally to support various obligations and drive economic growth, without borrowing outside.

Mthuli said toll fees, currently pegged between US$2 and US$10, depending on the type of vehicle would be reviewed upward toll fees on premium roads namely Harare-Beitbridge and Plumtree-Mutare and other roads, with effect from January 1, 2024.

Revenue derived from the increased fees will be remitted to the Consolidated Revenue Fund.

He said the consumption of high sugar content beverages is linked to increased risk of non-communicable diseases that killing people in Zimbabwe.

“It is, thus, necessary to discourage the consumption of high-sugar content beverages, hence, I propose to introduce a levy of US$0,02 per gramme of sugar contained in beverages, excluding water, with effect from January 1, 2024.

“Funds derived from this levy will be ring-fenced for therapy and procurement of cancer equipment for diagnosis,” he said.

To ensure that every person contributes to the fiscus in line with their levels of income, Mthuli proposed to introduce a Wealth Tax levied at a rate of 1 percent of market values of residential properties with a minimum value of US$100 000.

A 1 percent levy on gross proceeds of lithium, black granite and other cut or uncut dimensional stones and quarry stones will be introduced to develop communities in which the minerals are extracted.

Mthuli projected the domestic economy to grow by 5,5 percent in 2023, a slight upward revision from the August projection of 5,3 percent projected in his mid-term budget, on account of better-than-expected output in agriculture, in particular, tobacco, wheat and cotton.

“However, economic growth is expected to slow down to 3,5 percent in 2024, mainly owing to the anticipated impact of the El-Nino phenomenon being forecasted for the 2023/24 summer cropping season on agricultural output, as well as declining mineral commodity prices attributable to the global economic slowdown,” Mthuli said.

The Treasury Chief said the 2024 economic projections are underpinned by the following broad assumptions that include the expected normal to below normal rainfall season due to the El Nino effect, slowdown in global economic growth amid geo-political tensions, declining international commodity prices, continued use of the multicurrency regime and tight fiscal and monetary policies.

“Mr Speaker Sir, in line with the projected economic growth of 3,5 percent, total revenue collections in 2024 are estimated at $53,9 trillion, (18,3 percent of GDP), broken down as $51,2 trillion tax revenue and $2,7 trillion non-tax revenue.

Mthuli said the fiscal policy thrust for the 2024 National Budget is guided by the need to maintain a sustainable budget deficit within the SADC macroeconomic convergence threshold of not more than 3 percent of Gross Domestic Product.

“Going into 2024, Treasury seeks to consolidate and entrench the stability to facilitate economic transformation and preserve disposable incomes.

“Fiscal restraint and tight monetary policy, together with a healthy current account position, provides the necessary conditions for currency and price stability. Specifically, he said the central bank will target a month-on-month inflation rate of less than 3 percent throughout 2024.

Guided by the expected revenue envelope and the desired fiscal path, expenditures in 2024 are projected at $58,2 trillion (19,8 percent of GDP).

On the inflation front, Mthuli said domestic prices have relatively been stable since the third quarter of the year, as reflected by month-on-month inflation, which declined from 12,1 percent in June 2023, to 4,5 percent in November 2023.

“Concomitantly, the annual headline inflation declined from 30,9 percent in June 2023 to 21,6 percent in November 2023. In the outlook, annual inflation is expected to remain relatively stable and is projected to end the year 2023 slightly below 20 percent,” the Minister said.

This was against the backdrop that growth in both the reserve money (M0) and broad money (M3) has significantly slowed down, having peaked in June 2023.

The reserve money and broad money annual growth declined from 3 074.25 percent and 1 174.94 percent in June 2023 to 1 406.81 percent and 719.66 percent, in September 2023, respectively.

The decline in monetary aggregates, largely blamed for the volatility in the first quarter, which stoked hyperinflation, was largely due to the combined effect of tight monetary policy and prudent fiscal policy measures.

In 2024, Minister Ncube said annual inflation was anticipated to end the year between 10 percent to 20 percent, reflecting continued tight monetary and fiscal policies.

On the exchange rate, he said the introduction of the wholesale foreign exchange auction on the back of the recent liberalisation of the exchange rate, saw the parallel market premium declining from a peak of over 140 percent in May 2023 to around 20 percent in October 2023.