Medium-Term Budget Expectations 2021 – The Zimbabwe Independent

BY VICTOR BHOROMA

Zimbabwe’s mid-term budget for 2021 is expected to be presented in early July amid encouraging signs of economic recovery over the past 12 months. The country is going through a period of relative macroeconomic stability marked by a significant drop in the annual inflation rate (year on year) which fell from 241% in March to 194% in April. Monthly inflation fell 0.67% from March’s figure to 1.58% in April.

The country relived the horrific jolts of inflation in 2020 when pensions, savings, household incomes, securities and corporate profits were wiped out by record inflation. The Treasury presented a budget of zw $ 421.6 billion in November 2020, with revenue of zw $ 390.8 billion expected this year.

The central bank and the government expect annual inflation to fall below 10% by December 2021. The government also predicts that the economy will grow by 7.4% thanks to good performance in the agricultural sector, stability of energy supply and resilience of tobacco mines and exports.

However, the International Monetary Fund (IMF) expects the economy to experience a modest growth rate of no more than 3.1%. The Bretton Woods institution stressed that Zimbabwe needs broader reforms and a stabilization program to support the government’s current efforts to reduce inflation and curb the depreciation of the zim dollar.

The government was urged to synchronize tax reforms with the management of exchange rate inefficiencies and punitive exchange control regulations. Other aspects that need attention include addressing the health and social issues related to Covid-19 and implementing structural reforms that will improve the ease of doing business and deal with rampant corruption.

Zimbabwe has yet to present a debt repayment plan for the more than US $ 10 billion owed to multilateral donors such as the Paris Club, the World Bank, the African Development Bank (AfDB) , the European Investment Bank (EIB), among others. A debt clearance plan will be essential to unlock future lines of credit, especially for infrastructure development where public funding is insufficient.

The upcoming budget aims to consolidate gains in economic stability while addressing recurring issues such as civil service pay and high cost of production, among others. Here are the main expectations for the next mid-term budget:

Address the cost of fuel

The fuel pump price of $ 1.33 per liter for gasoline and $ 1.32 per liter for diesel makes Zimbabwe’s fuel the most expensive in southern Africa while ranking it among the most expensive in Africa. The government is slaughtering imports and excise taxes on fuel.

The tariff is $ 0.30 for each liter of fuel imported through the public pipeline and $ 0.35 per liter for fuel imported by road transport. Zinara road tax ($ 0.06), debt repayment tax ($ 0.057), carbon tax ($ 0.04) and other taxes are then added to bring the total tax to 0, $ 50 per liter consumed locally. .

Companies in the oil value chain, especially burgeoning retailers, will then pay the Zimbabwe Energy Regulatory Authority license fees and additional taxes levied on operating income. The cost of fuel strongly drives the cost of production in all sectors and reduces the competitiveness of Zimbabwean products in the local market compared to imports.

This means Zimbabwe will continue to be a lucrative destination market for goods produced in South Africa, Zambia and other Sadc countries that land in the local market at cheaper prices than locally produced goods.

Likewise, the export trade of value-added products cannot develop with such cost barriers. Current fuel tax levels are excessive and do not match Sadc market trends for landlocked oil importing countries such as Zambia.

As such, the budget should address the cost of fuel by reducing the import and excise duties paid on fuel to around $ 0.20 per liter, the carbon tax to $ 0.01, and the tax. Zinara road less than 0.03 USD to manage the cost of production in the economy.

Tax-free threshold

To protect low-income people from inflation and quell reluctant officials, the budget should increase the tax exemption threshold from zw $ 10,000 (US $ 118) to zw $ 20,000 (US $ 236). The immediate impact would be to increase net labor income while significantly improving consumption in the economy.

The country’s credit market is also experiencing a resurgence due to redollarization and it will benefit enormously from an increase in disposable income for employed people.

Public service remuneration

Morale remains extremely low among the 400,000-plus civil servants on the government payroll, with severe brain drain in critical sectors such as health and education.

The government recently granted a 45% increase, which allowed the lowest paid official (grade B1) to receive zw $ 17,000. The government has committed to a 45% review by the end of June 2021.

The entry salary above equals $ 200 if the soft index auction rate is used and $ 135 if the widely quoted parallel exchange rate is used. It is essential to emphasize that the market basket is informed by the exchange rates of the parallel market, in particular rents, insurance, health care and tuition fees.

The local cost of living for a family of five, as measured by the Zimbabwe National Statistics Agency (ZimStat), is now Z $ 28,362, up from Z $ 26,560 as of March 2021. This means that officials cannot not live decently on their wages. and therefore are involved in other income generating activities using government resources and they are forced to engage in corruption to make ends meet.

There is now an urgent need to use the published budget surpluses and other revenue gains of currency tax officials to give civil servants and retirees a living wage that is in line with the real cost of living (such as measured by the government).

Low morale in the public service affects service delivery in all government departments and engages a dangerous culture of corruption in the economy. The culture has become so endemic that all public services rendered in government departments require a bribe.

Transparency of payments

The budget should detail how the government finances the purchase of corn and other agricultural products given the bumper harvests expected for the current 2020/21 season. The government predicts that at least 2.7 million metric tonnes (mt) of corn will be produced this year and that number is more than double the five-year average.

The producer price of maize is set at ZW $ 32,000 (US $ 378 / tonne) and farmers are expected to deliver 1.8 million metric tonnes of maize to the Grain Marketing Board (GMB). This corresponds to approximately ZZ $ 57.6 billion before input refunds were deducted from farmers who received government subsidies. The figure does not include the 200,000 tonnes expected for traditional cereals. The government has promised that there will be no late payments for delivered products, as was the norm in previous years.

As such, the budget should detail the amount to be set aside by the government for such payments, given that the export of maize is not viable as it is priced above world producer prices (currently 269 US $ / tonne).

The budget should also include the fundraising initiatives used to raise the necessary funds. This is essential because it fuels the growth of money supply and inflation levels.

The budget is also expected to maintain various incentives in favor of local producers, such as the remission of duties on fertilizer and shoe manufacturers, and the suspension of duties on motor vehicles imported by safari operators and buses for them. tourism tour operators.

The Treasury will also have to set aside a substantial amount for the rehabilitation and maintenance of roads, given the level of degradation of road infrastructure in the country. It remains to be seen whether the budget will meet Vision 2030’s aspirations to develop the mining sector and encourage value addition in the economy or whether the plans will remain simple plans separate from fiscal policy.

Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe. – [email protected] or Twitter: @ VictorBhoroma1.


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