Bullish budget in reform cocktail

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Minister Patrick Chinamasa

Happiness Zengeni and Golden Sibanda
Zimbabwe yesterday pronounced a cocktail of policy reforms that are pro-investor and business friendly, designed to usher in a new economic order that drives growth, job creation and investment, amid bullish sentiment about prospects for the coming year.
Finance and Economic Development Minister, Patrick Chinamasa projected in his $5,07 billion 2018 National Budget that growth was projected to be 4,5 percent, premised on Government charting a new way forward with economic and investment recovery measures towards a ‘New Economic Order’, underpinned by strengthening of cooperation with global partners.

It is against this background that Minister Chinamasa themed the 2018 budget “Towards a New Economic Order”, which is drawn from such recognition and acknowledgement. The Minister said the ‘New Economic Order’, , was geared towards restoring discipline, fostering a stronger culture of Government policy implementation; supported by political will.

The measures are aimed at correcting the fiscal imbalances and financial sector vulnerabilities; public enterprise and local authorities reform; improving the unconducive investment environment; dealing with corruption in the economy; re-engagement with the international community; stimulating production, and exporting; and sustainable creation of jobs.

He said recovery measures towards a ‘New Economic Order’ usher a break away from policy inconsistencies, reversals and hesitations of the past, and signal a strong “Business Unusual Approach.” Already, Government has started the process to amend the Indigenisation law in order to attract more investments.

Minister Chinamasa said that the overriding aspiration was upliftment of social-economic conditions of the populace, through making short-term sacrifices that allow the budget to play its rightful role in addressing production, job creation, and poverty reduction, targeting high prevalence of unemployment in Zimbabwe and factors constraining sustainability of production.

“We must be bold to set annual targets for creation of decent jobs and strive to spread these across the various sectors of the economy. This requires that Government collectively acknowledges the risks and costs brought about by directing a dis-proportionate share of Budget expenditures towards salaries, allowances and other consumptive expenditures, such as condition of service vehicles and travel, among others,” he said.

Agriculture is estimated to grow by 15,9 percent in 2017, on the back of Government coordinated interventions in partnership with the private sector. The expanded “Command Agriculture” Programme, to include soya beans and livestock production, is expected to sustain growth of the agriculture sector.

The mining sector is expected to grow by 7,5 percent in 2017 and …percent in 2018, supported by modest recovery in global metal prices for most minerals including nickel, platinum, chrome and granite. As a result, mineral export receipts of $2,5 billion are projected for 2018, up from $2,3 billion expected in 2017.

The consolidation of the diamond industry, together with the capitalisation of the Zimbabwe Consolidated Diamond Company (ZCDC), saw marked improvement in output of the gems. As at end of September, diamond output stood at 1,8 million carats, up from 1,3 million recorded during the whole of 2016.

On the back of strong performance displayed during the period to September 2017, the country remains on course to meet the target of 24,5 tonnes of gold deliveries through Fidelity for the entire 2017.

Growth in manufacturing is estimated at 1 percent, with projections of 2,1 percent in 2018, benefitting from improved agro processing value chains in foodstuffs, drinks, and ginning, also amid supportive import management measures instituted by Government.

On cash shortages, Minister Chinamasa said central was the mismatch between stock of foreign currency available, as represented by hard currency and nostro balances, and electronic RTGS money balances in banks, largely being fueled by borrowing requirements to finance the national budget deficit.

He said it was for this reason that the New Economic Order was targeted at enhancing production and exports by adopting investor friendly policies, re-engaging with the world, easing the way we do business, addressing corruption and indiscipline.

“In the outlook, the biggest threat emanates from inflationary pressures that the economy faces from potential general price hikes driven by speculative tendencies, arising from the mis-match between electronic bank balances and available foreign exchange,” he said.
In September 2017, monthly prices rose by 0,4 percent. On an annual basis, this translated into inflation of 0,8 percent for the twelve months to September.

On fiscal indiscipline, Minister Chinamasa said this called for the Reserve Bank to put in place policy measures to sterilise the impact on the stock of money supply/RTGS balances within the economy.

This was because the growth in money supply witnessed in the past few months, emanating from the purchase of agricultural produce, and domestic financing of the Presidential and Command agriculture initiatives, coupled with heightened inflation prospects, has great potential to adversely affect the inflation outlook.

Treasury has adopted fiscal deficit targeting, under which the national budget deficit for 2018 is halved to below 4 percent of GDP, and subsequently capping Budget deficits below 3 percent, in line with best practices and financing capacity of the economy.

Sustainable level of public debt to GDP, consistent with the Section 11(2) of the Public Debt Management Act, which requires that total outstanding public and publicly guaranteed debt as a ratio of GDP will be kept below 70 percent at the end of any fiscal year.

The eiling of Government Borrowing from the central bank, in line with Section 11 (1) the Reserve Bank of Zimbabwe Act, which requires that RBZ lending to the State at any time shall not exceed 20 percent of the previous year’s Government revenues.

Government said it will increase minimum spending on infrastructure, by re-directing substantial resources towards capital development priorities, through increasing the capital budget from the current 11 percent to 15 percent in 2018 and 25 percent by 2020.

Further, Minister Chinamasa said there shall be progressive reduction of the share of employment Costs in the Budget to initially 70 percent in 2018, 65 percent in 2019, and below 60 percent of total revenue by 2020, to create fiscal space to for financing of the development budget and operations of Government.

To that end, the freeze on recruitment is maintained across the board, save for critical posts, as determined by Treasury in conjunction with Service Commissions. Already, this has worked well in containing the amount of resources spent on employment. In the same interest, from January 2018 Government will, through the Service Commissions, retire staff above the age of 65.

Minister Chinamasa also said that Government had already rationalised the size of the executive to cut costs, from 27 to 21 Cabinet ministers, was rationalising costs incurred on foreign missions and was reviewing conditions of services for senior Government officials and senior executives of State owned entities.

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