eBusiness Weekly
Zimbabwe’s general Government revenue is expected to slightly improve to 23 percent of GDP this year, up from the 22,5 percent recorded last year, the Fiscal Monitor released on Wednesday by the International Monetary Fund has said.
However, the report released under the theme Çapitalising on Good Times was bearish about Zimbabwe’s medium term’s government revenue, saying it will recede to 22,8 percent of GDP next year, further retreating to 22,6 percent in 2020.
According to the Monitor, Zimbabwe’s Government revenue is projected at 19,25 percent in 2021, 19,4 percent in 2022 and 19,4 percent in 2023.
In terms of Government expenditure, the report sees the country’s general Government expenditure rising from 32,1 percent recorded last year to 26,2 percent in 2018.
Expenditure is projected to be streamlined further to 24,7 percent next year.
In the medium term, expenditure is expected to move down from 24.4 percent in 2020 to 20,9 percent in 2023.
Zimbabwe has been implementing fiscal consolidation programmes and the 2018 national budget has proposed several measures including reduction of civil servants’ allowances and freezing of salaries.
The Fund says that Zimbabwe’s debt levels are expected to retreat from 78.4 percent of GDP recorded last year to 75.2 percent this year; further declining to 72,6 percent in 2019.
In the long term, debt levels are forecasted to decline from 70,8 percent in 2020 to 68.7 percent in 2021, further down to 66.4 percent in 2022 and 63.9 percent in 2023.
Zimbabwe’s laws require that debt levels should be capped at 70 percent of GDP. According to the Monitor, Zimbabwe’s general government primary balance, which is composed of government net borrowing, excluding interest payments on consolidated government liabilities, is expected to rise from -8.5 percent of GDP to -1,9 percent this year.
In the medium term, it is projected to stand at zero percent next year, and average 0,1 percent for the next four years afterwards. Projected overall balance of -3,3 percent between 2018 and 2023.
The country is also expected to record a projected interest rate growth differential of -5,4 percent between 2018 and 2023.
The report says that strong and broad-based growth provides an opportunity to begin rebuilding fiscal buffers now, improve government balances, and anchor public debt, adding that strengthening fiscal buffers in the upswing will create room to provide fiscal support in an eventual downturn and will prevent fiscal vulnerabilities from becoming a source of stress if financial conditions deteriorate.
“Global debt is at historic highs, reaching the record peak of US$164 trillion in 2016, equivalent to 225 percent of global GDP.
The world is now 12 percent of GDP deeper in debt than the previous peak in 2009, with China as a driving force.
“Decisive action is needed now to strengthen fiscal buffers, taking full advantage of the cyclical upswing in economic activity”, says the report.
As growth returns to its potential, the report says that fiscal stimulus loses its effectiveness while the cost of fiscal consolidation diminishes, making it easier to switch from fiscal expansion to fiscal consolidation.
According to the report, it is important to note that building buffers now will help protect the economy, both by creating room for fiscal policy to step in to support economic activity during a downturn and by reducing the risk of financing difficulties if global financial conditions tighten suddenly.
“In general, countries should allow automatic stabilisers (that is, tax and spending that moves in sync with output and employment) to operate fully, while making efforts to put deficits and debt firmly on a downward path toward their medium-term targets”,
Meanwhile, the Global Financial Stability report also released on Wednesday by the Fund noted that despite ongoing monetary policy normalisation in some advanced economies and some signs of firming inflation, global financial conditions are still very accommodative relative to historical norms.
“Although supportive of near-term growth, easy financial conditions also continue to facilitate a build-up of financial fragilities, increasing risks to global financial stability and economic growth over the medium term”. — FinX.
