By Victor Bhoroma
Zimbabwe’s national budget for 2021 is expected to be presented within the next 30 days amid fears of a resurgence of high levels of inflation.
The country’s annual inflation fell from 363% recorded in January to 55% recorded in October, making it the most important achievement of the monetary authorities in the last 10 months. However, monthly inflation for September rose to 4.7% due to the growth in the money supply.
In addition, the government has resumed implementing Statutory Instrument (SI) 127 of 2021 after a period of relative stability and calm. The regulation requires businesses to sell or quote products using the prevailing auction rate set by the central bank and provides for penalties for businesses that refuse to accept payments in local currency at the auction rate. in force. By enforcing this regulation in a market where foreign currency is scarce, the government is pushing producers and retailers to constantly increase the prices of the Zimbabwean dollar in parallel with the parallel market rates. This is at the root of the current increase in the prices of basic goods and services.
For 2021, the government planned to spend no more than ZW $ 421.6 billion (US $ 5.1 billion), or 17.6% of gross domestic product (GDP), compared to ZW $ 162.4 billion. ($ 1.98 billion) of 2020. Income projections have been set at ZW $ 390.8 billion (16.4% of GDP), resulting in a budget deficit of ZW $ 30.8 billion (1, 3% of GDP).
Of the ZW $ 421.6 billion budget, capital expenditure was ZW $ 131.6 billion ($ 1.6 billion and 5.5% of GDP), while the recurrent expenditure figure was 290 billion ZW dollars (3.5 billion dollars and 12.1% of GDP) with wage costs projected at 142.6 billion ZW dollars (1.74 billion dollars and 5.9% of GDP).
The 2009 African Union (AU) declaration stipulates that African countries must devote at least 9.6% of their GDP to infrastructure, while the 2001 Abuja declaration requires governments to commit to 15%. in health care.
In the 6 months leading up to June 30, the government collected ZW $ 198.20 billion (with ZW $ 189.97 billion levied on taxes) and spent ZW $ 197.60 billion, which generated an accounting surplus of ZW $ 570 million. However, the Zimbabwe Revenue Authority has a net tax collection figure of ZW $ 195,176 billion for the same period.
Civil service expenditure was ZW $ 80 billion, social benefits and subsidies were ZW $ 14.5 billion and ZWL $ 2.9 billion respectively. Infrastructure development projects totaled ZW $ 21.2 billion, although billions have been allocated to the Emergency Road Rehabilitation Program (ERRP) in the past 4 months.
More importantly, the government collected foreign exchange taxes worth US $ 698.5 million during the period and the forecast is that by 2021, foreign exchange earnings will eclipse US $ 1.5 billion. Americans. With such hard currency tax collections, Zimbabwe should now have a strategy to repay its external debt.
With the economy expected to register a growth rate of 7.8% (5.1% according to the IMF’s outlook), the Treasury is expected to announce a budget that creates domestic demand, sets the reindustrialization program and improves competitiveness at the light of the African Continental Free Trade Area (AfCFTA). Below are some of the aspects that should get the attention of cash.
Face the cost of fuel
The fuel pump price of $ 1.40 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 .
|SADC countries||Gasoline (US $ / Liter)||Diesel (US $ / liter)||Mean|
Fuel pump prices for SADC countries in September 2021
The government is killing off the import and excise duties levied on fuel. The duties are $ 0.32 for each liter of fuel imported through the government-owned pipeline and $ 0.37 per liter for fuel imported by road transport.
ZINARA Road Levy ($ 0.06), Debt Repayment Levy ($ 0.057), Carbon Tax ($ 0.04) and other taxes are then added to bring the total taxation to 0 , 50 USD per liter consumed locally. Companies in the petroleum value chain, especially successful retailers, will then pay the ZERA license fees and additional taxes levied on operating revenues.
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 lower prices than locally produced goods. . Likewise, the export trade of value-added products cannot grow 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, Swaziland and Malawi. As such, the budget should take into account 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 ZINARA road tax less than USD 0.03 to manage the cost of production in the economy. .
Public service remuneration
Morale remains extremely low among the 400,000 and more public servants employed by the government, with a serious brain drain occurring in critical sectors such as health and education. The government recently granted a salary increase of 45% to 50%, which allowed the lowest paid official (grade B1) to receive ZW $ 28,600. The entry level salary above equates to $ 295 if the soft-peg auction rate is used and $ 150 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 poverty line as measured by the Zimbabwe National Statistics Agency (ZimStat) is now ZW $ 7,118 for one person and ZW $ 42,708 for a family of six (6). This means that civil servants cannot afford a decent life with their salaries 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 foreign currency tax revenues to provide civil servants and retirees with a living wage, in line with the real cost of living (as measured by the government). Low morale in the civil service affects the delivery of services in all government departments and entrench a dangerous culture of corruption in the economy.
The culture has become so endemic that any public service rendered in government departments requires a bribe. The country’s credit market is also experiencing a resurgence due to re-dollarization and it will benefit immensely from an increase in disposable income for employed people.
IMMT tax review
The intermediated money transfer tax (IMTT) is a transaction tax accumulated at various levels by businesses. Since the tax is also levied on formal businesses that pay corporate tax, the budget should make the transaction tax deductible from corporate tax or value added tax (VAT) as this is the case for other transaction taxes. This will provide relief to all hard-pressed tax-compliant businesses.
Zimbabwe is on the verge of increasing its export earnings from the US $ 4.4 billion achieved in 2020. However, the country’s dependence on commodity exports hinders economic growth and diversification. . Exporters pay up to 45% tax in total and lose 20% of their actual export earnings due to exchange rate mismatches between formal and informal market rates. To provide export incentives, export restitution requirements need to be revised or at least the auction platform needs to be market determined (not pegged by government). Exchange rate distortions threaten the viability of manufactured exports.
The budget is largely expected to maintain various incentives for 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 tourism tour operators. It remains to be seen whether the 2022 budget will meet the aspirations of Vision 2030 to transform the economy through value chains, value addition and upgrading.
Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Comments: e-mail [email protected] or Twitter @ VictorBhoroma1.