2019 Budget: A Call for Internal Consistency, Realism and Reasonableness of Expenditure

Dr Mugano

By Byron Mutingwende

 

Celebrated economist, Dr. Gift Mugano, the Registrar at Zimbabwe Ezekiel Guti University and Director at Africa Economic Development Strategies has called for austerity in practice as outlined in the 2019 National Budget.

 

Dr. Mugano made the call at Parliament’s post-budget conference held at the Rainbow Towers Hotel in Harare on 26 November 2018.

 

The economist revealed that the central problem in Zimbabwe is low production which has caused the country to have twin problem, that is, trade imbalances and fiscal imbalances as opposed to the largely held view that the country has currency challenges.

 

“We have a production problem not currency! The primary objective of the 2019 Budget is to stabilise the economy by targeting the “twin deficits” of fiscal and current account, which have become major sources of overall economic vulnerabilities, including in inflation, sharp rise in indebtedness, accumulation of arrears and foreign currency shortages,” Dr Mugano said.

 

With immediate effect, Government embarked on a policy stance to gradually reduce the Budget deficit to single digit level, hence, targeting 5% of GDP for 2019 and 4.1% in 2020, and to 3% in 2021. In the same vein, Government committed itself to reduce recourse to Central Bank lending from the 20% of previous year’s revenues statutory limit, to a maximum of 5% confined for purposes of smoothening cash ow mismatches.

 

In line with these targets, the 2019 budget expenditure is projected to be $8.2 billion against revenue target of $6.6 billion leaving a deficit of $1.6 billion, i.e., 5% of GDP.

 

The economist said this was a “good beginning but the devil lies in implementation.”

 

Government has proposed a raft of expenditure containment measures. On salary cut, Government with effective from 1 January 2019 is introducing a 5% cut on basic salary which will be effected for all senior positions from Principal Directors, Permanent Secretaries and their equivalents up to Deputy Ministers, Ministers and the Presidium.

 

This is also extended to basic salaries of those in designated posts in State Owned Enterprises (CEOs, Executive Directors and equivalent grades), including Constitutional Commissions and grant aided institutions.

 

Regards the 13th Cheque, with immediate effect, civil service bonus will be computed based on Basic Salary only (excluding housing and transport allowances) and will be paid in 2018).

 

On Rationalisation of Foreign Service Missions, Government has resolved to reduce the number of Foreign Missions, thereby optimising the utility value realised from the remaining missions as well as avoiding accumulation of arrears and embarrassing evictions of our diplomats.

 

On Retirement of Youth Officers, Government will retire 2 917 Youth Officers by end of December 2018 and retirement of officials who reached 65 years savings of $92 million. It is envisaged that the Biometric Register for Civil Servants in 2019 is aimed at flushing out over 70,000 ghosts workers.

 

On the current account deficit, Dr. Mugano said Government noted with concerns the fact that Zimbabwe exports are largely uncompetitive due to cost and inefficient production.

 

He bemoaned the fact that the country relies on primary commodity exports which are of less value compared to high value processed goods. In addition, the import bill has been dominated by a wide range of imports, some of which are not critical or strategic.

 

“In addressing this problem, through the budget statement, Government measures to address the current account deficit include the following: supporting export oriented production e.g. horticulture; strategically manage available foreign currency by prioritising import substitution production e.g. retooling and raw materials; decisive action on revival of ZISCO Steel and Cold Storage Commission, local drug manufacturing etc. to boost exports while limiting on import demand; value addition and beneficiation in mining and agriculture; and review import duty dispensation for some of the projects and programmes, e.g. National Project Status.”

 

 

On production enhancement measures, the 2019 Budget proposes speeding up of ease of doing business reforms, including the long awaited operationalisation of the Zimbabwe Investment and Development Agency, ZIDA.

 

It is also working on finalising the setting up of a Commodities Exchange, hence opening up space to private sector players, thus shifting the burden from fiscus.

 

In addition, Government committed to forge ahead with rolling out parastatal reforms on a roll out template which categorises the entities under the following:

  • State Owned Enterprises to be partially privatised through JVs and/or listing;
  • State Owned Enterprises to be fully privatised; and
  • State Owned Enterprises facing liquidation.
  • Duty in foreign currency for selected products which ranges from agricultural products, manufactured and motor vehicles

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