Mthuli 2024 budget up in flames
ZIMBABWE is going through a serious El Nino-induced drought. Many lives are at risk of food shortages and yet the country’s 2024 national budget is in flames due hyperinflation, spiralling foreign exchange rates, a rising import bill and civil service wage demands.
These are not the only challenges to the economy. It has been warned by the International Monetary Fund (IMF) that it should stop the Reserve Bank of Zimbabwe’s involvement in quasi-fiscal operations. These activities include funding of new road infrastructure and guaranteeing command agriculture funding, among other things.
President Emmerson Mnangagwa has a natural inclination to stand out. He is not one shy to flaunt riches or in Zimbabwe’s case, a thriving and recovering economy that is set to reach the dizzy heights of an upper-middle economy by 2030.
To get to that level Zimbabwe’s economy needs to be growing at double-digit levels for a decade — 2020 to 2030.
This is not only highly ambitious and untenable, considering the base from which Zimbabwe is coming from and the attendant economic conditions as aforementioned in this article.
Zimbabwe is witnessing the coming of the dry season both metaphorically and in reality. The country is in the throes of a depressed economy and a starving population. The same population that should be at the forefront of putting their shoulders to the wheel.
The numbers of families that need food aid could be as high as 5 million according to the World Food Programme.
This is about a third of the national population. In short, one in three people will be starving. The whole country is a national food disaster zone. Zimbabwe has rising cases of urban poverty.
Mnangagwa is yet to declare a state of national disaster or state of emergency so that it can easily access food aid. Our northern neighbours, Zambia, has since declared a state of disaster — giving itself a head-start to work with development partners in bringing food relief to her people.
Zimbabwe came close to acknowledging the looming disaster in this week’s cabinet briefing. It did not speak directly to the disaster but sought to have the matter spun to be attractive, saying farmers can swap other grains for maize.
The Cabinet said: “Cabinet wishes to advise the nation that in light of the El-Nino-induced drought, various measures are being instituted to guarantee food security for all and ensure that no one dies of hunger.
“Among other issues considered, the Cabinet discussed the importance of considering more hectarage for growing rice in view of increased rice consumption by the citizens. Cabinet also emphasised the need to support and promote local wheat production for direct consumption for a swap with maize in order to meet maize demand for the nation.”
The government further revealed the quantities of maize a person should receive per month so that they can remain food secure.
“That the consumption of 7,5kg per person per month be used immediately for social welfare and be adjusted after October to 8,5kg per person per month,” Cabinet said.
It is not clear why the people will need an extra one kg from October. The guess is a new farming season would have commenced and they need that for extra energy to work on the fields.
Then the Cabinet indirectly spoke about amending the new tax regime for the 2024 financial year. The year had started on a note where most basic goods that were exempt from customs duty were now back on the list to pay duty. It remains unclear how much would have been raised, but now the duty has been waived again.
Cabinet said: “Duty free importation of maize, rice and cooking oil by households with effect from July 2024.”
Let’s piece together what this means in simple terms and what is the impact on the balance of payments? The government said maize should be bought locally at US$390 per tonne.
It is a fact that this figure is above the international market price for maize. There is a real chance that those with free funds or access to the central bank auction will import maize, rice and cooking oil for resale using the Zimbabwean prices, thus making super profits.
It remains unclear why the free imports start in July. Some basic explanation would be that the Treasury by then would have revised the budget — Mid-Term Fiscal Statement — and potentially pass a supplementary budget.
It is understandable from Mthuli Ncube, a man seeking validation from the IMF and has in the past been accused of not being open and transparent in the manner he is funding government expenses.
The government has very limited fiscal space to meet the emerging needs for food relief, salary and wages increment to meet the galloping food inflation and at the same time meet the debt clearance targets.
Civil servants have become restless as their salaries, which are mainly in Zimbabwe dollars, have been wiped away by the local unit’s continued weakening value against the greenback.
At the start of the year when the 2024 budget was passed by parliament the exchange rate stood at ZWL$6 900 to the US dollar. This has since risen to ZWL$20 000 to the dollar.
The situation is likely to get bleaker for the civil servants and all working class in Zimbabwe as the food inflation is likely to rise, due to imports that are mainly in hard currencies against a weakening local currency.
While this is ongoing, Treasury has continued to fund road infrastructure projects ostensibly to prove to Sadc ministers and presidents coming into Zimbabwe for the annual Sadc summit in August.
Reality is starting to sink home. The ship is sinking and hard decisions have to be made.
Multi-currencies are not working and continued dollarisation is not an option. Over to Finance minister Mthuli Ncube Mthuli and his supplementary budget.