Economy Uncensored with Tapiwanashe Mangwiro
Over the past week discussions, seminars and debates have been made on the recently presented 2024 National Budget.
Some have embraced it, while others are still criticising it. Another segment of the community do not even understand what is being said.
Issues have been raised, support has been given, but as promised, December is the month of the budget and we will be deciphering it to the best of our ability and today it is about what kind of funding did the Minister of Finance, Economic Development and Investment Promotion Mthuli Ncube try to raise and the possible reasons.
To begin with, the minister said he wanted to preserve the purchasing power of the people and I think this motivated the many taxes that people are complaining about.
A simple look around you could easily see that national projects had virtually stalled and they needed to resume, that is what the minister tried his best to address with this budget.
Minister Mthuli had three areas to address, living standards, infrastructure building and repair, and lastly debt repayment.
I believe there were two ways he thought of to fund all this, “Money printing or Tax revenue”.
Money printing is what we have been using before last year September and this year May when local currency cash became hard to get by.
The problem with printing is that you wake up with a new exchange rate everyday, and a dollar today will be worth 80 cents tomorrow.
Hence it was super inflationary and defeated the purpose of living standards as we would not buy the same product at the same price in a space of two days. But on the other side, we built roads and dams at the expense of people’s buying power.
Now in order to preserve people’s buying power (not entirely) he thought of increasing revenue through taxes, which is a cost push method meaning its also inflationary, but not as rapid as printing and is also manageable.
However, extreme cost-push inflation can have a severe impact on the economy, leading to a decrease in the purchasing power of consumers, decreased profit margins for businesses, an increase in unemployment and a decrease in economic growth.
So we will look at what he wants to do and how it will affect our lives going forward.
Before we do that, here is what the minister expects to happen next year economy wise.
Economic growth is going to drop to 3,5 percent from 5,5 percent expected this year due to a forecasted drought this season and poor international prices for minerals.
This already means we pay for food later in the year 2024 and reduce tax revenue from minerals because of low prices. There already is a need to find money elsewhere.
Additionally, as a result of what method the minister chose, he expects that month on month inflation will hover below 3 percent during 2024 and year on year inflation will be between 10 and 20 percent next year.
In the coming year the minister expects to repay part of our debt, which includes debt payments, token payments and interest payments.
The country owes other countries, companies plus former farm owners a total of US$17,7 billion and external debt is US$12,7 billion of our debt. Former farmers are owed US$3,5 billion.
We have had serious power problems this year despite the periodic kick-ins of Hwange 7 and 8 which are still being tested and facing routine maintenance. But next year they will be fully functional.
Despite the new plants, Kariba will suffer from low usable water, then Hwange 1-6 will be under life extension programme — meaning they are being fixed to try and make them continue pushing meaningful MWs. But due to their age, the units need serious engineering ingenuity to continue churning out the MWs.
National power generation is going to grow by 280MW due to full use of Hwange 7-8, improved Hwange 1-6 and independent power producers who are going to come online next year. However, we are set to lose half of Kariba due to the drought.
National power demand is going to increase to 1 866,70MW a day from 1 700MW.
The positive thing is we expect to see a 100MW reduction in imports to leave them at 200MW a day on average.
But, load-shedding will be there in small parts because despite all this we will still have a shortfall of 300MW which has been the average shortfall in the years we have had consistent electricity supply.
In 2024, the minister is aiming to work on Beitbridge-Chirundu, Beitbridge-Bulawayo-Vic Falls Road and other rural roads at a cost of US$246 million.
Of that money, the Road Fund is going to push through US$124 million. This is the money which includes US$80 million from passports, increased toll gate fees among other ring-fenced collections. Then US$113 million from the budget, the remainder from development partners.
For most of us here, there is a big win to celebrate, withholding tax for our farm produce has been adjusted from US$1 000 to US$5 000 per year.
What does it mean? Our maize, soyabean, sunflower, cotton (except tobacco and other cash crops) that we deliver at the GMB are subject to a tax and previously anyone delivering for example four tonnes at US$300 per tonne of maize was subject to that tax.
Now those who deliver up to 19 tonnes of maize to GMB are no longer required to pay that specific tax, meaning more money to the smallholder farmer.
Other ways of funding the infrastructure projects include grants, concessional or soft loans, but our minister does not have that luxury as the country is debt ridden.
Grants are funds provided with no expectation of repayment and concessional loans, or soft loans, have more generous terms than market loans.
These generally include below-market interest rates, grace periods in which the loan recipient is not required to make
debt payments for several years or a combination of low interest rates or grace periods.
Tapiwanashe Mangwiro is a resident economist with the Business Weekly and writes this in his own capacity. @willoe_tee on twitter, Tapiwanashe Willoe Mangwiro on LinkedIn and [email protected]