eBusiness Weekly
Martin Kadzere and Golden Sibanda
Zimbabwe will cut its budget deficit to 5 percent of the gross domestic product next year, from an 11,7 percent forecast for this year through expenditure cuts, including the public wage bill, Finance and Economic Development Minister Mthuli Ncube said.
Presenting an $8,1 billion 2019 National Budget Statement in Harare yesterday, from $4,1 billion in 2018, Minister Ncube projected total revenue at $6,6 billion; and forecast the national budget deficit at $1,57 billion or 5 percent of GDP in 2019.
The Government intends to spend $2,2 billion on capital programmes. The budget deficit widened after the Government increased civil servants salaries early this year and financing of farming inputs under its agricultural support programmes. It also largely financed the State budget deficit through issuance of Treasury Bills, which created excess liquidity on the market and caused currency instability.
Unrestrained Government expenditure and excess liquidated resulted in distortions that draw aggregate demand, demand for cash and foreign exchange rate currency swings, which caused an upward spiral in the prices of goods and services.
“These have been at the core of money creation hence, resulting in inflationary pressures and currency instability,” Minister Ncube said.
As such, the finance minister said going forward, “Public expenditures will have to be confined to the budgetary framework”.
The excessive Government spending swelled the public debt to nearly $18 billion by end of August this year, with domestic debt accounting for 54 percent of the debt stock.
“By end of 2018, it is estimated that the public debt statutory limit of 70 percent is likely to be breached,” Minister Ncube said.
“This underpins the urgency for containing our fiscal deficit.”
Reining in public spending
Prof Ncube said the Government was looking at further cutting the national budget deficit of 4,1 percent projected to be incurred in 2020, and to 3 percent in 2021.
To rein in public pending, the Government will reduce recourse to the Reserve Bank of Zimbabwe lending from the 20 percent of previous year’s revenues statutory limit to 5 percent confined for purposes of smoothening cash flow mismatches.
The Government will also, with effect from January 1, 2019 introduce a 5 percent cut on basic salary for all senior positions from principal directors, permanent secretaries and their equivalents up to deputy ministers, ministers and the Presidium.
This also extends to basic salaries of senior executives in State-owned enterprises.
Further, the Government resolved to reduce the number of foreign missions, thereby optimising utility value realised from the remaining foreign missions as well as avoiding accumulation of arrears and embarrassing evictions of the diplomats.
In addition, the government will also retire workers who have reached 65 as well as nearly 3 000 youth officers and eliminating thousands ghost workers of the state payroll through rigorous biometric registration among other security measures.
The said containment of the fiscal deficit is anticipated to free up more resources towards infrastructure development as opposed to consumptive spending, as well as cushioning vulnerable groups, as Government implements austerity measures.
Reducing deficit and limiting borrowing to sustainable levels, will also allow channelling of more resources to the private sector and support the overall strategy for a private sector led growth.
The Government will also move away from the tradition of assuming huge debts saddling parastatals and State enterprises, as part of measures to contain expenditure.
In an effort to address the risk of a higher budget deficit for 2018 and 2019, Government introduced the 2 percent intermediated money transfer tax, effective 13 October 2018.
Containing current account deficit
Minister Ncube said the 2019 budget also needed to address the “twin deficit” by implementing measures, which contain the persistent and unsustainable current account deficit.
The uncompetitive nature of local exports has led to a high import bill, which has been dominated by a wide range of imports, some of which are not critical or strategic.
Going forward, the minister said, measures to address the current account deficit include supporting export oriented production and strategically managing available foreign currency by prioritising import substitution production.
Minister Ncube also said decisive action will be taken on revival of Zisco and Cold Storage Company and local drug manufacturing to boost exports while limiting on import demand while value adding and beneficiating minerals and agricultural produce.
Multi-currency regime to stay
Minister Ncube said Government will maintain the multi-currency regime with the US dollar remaining the reference currency while on foreign currency allocation the minister suggested that the country gradually exits exchange controls.
He said the Government would build foreign reserves and mobilise lines of credit, as part of measures for value preservation under the multi-currency system. The minister said the government will establish a strong inclusive framework for forex allocation.
Prices to stabilise
On inflation, Minister Ncube said prices were expected to stabilise due to fiscal consolidation measures being pursued by Government, increased supply of goods following the scraping of import restrictions and stability in the foreign exchange market.
“The spike in prices of goods and services appears to have receded, confirming that the main price hikes were a spontaneous response to uncertainty and confidence issues.”
Inflation figures for October 2018 show that annual inflation gained 15,46 percentage points to reach 20.85 percent. Month on month rate for October 2018 is at 16,44 percent, representing a 15,52 percentage points increase on the September level.
