Mid-term Budget: Mthuli owes us revised figures

THERE is need for greater transparency in the national budgeting process, says independent research firm Sidewaos. The think-tank has pointed to disparities around revised inflation and revenue targets in Finance Minister Mthuli Ncube's Mid-term Fiscal Policy Review statement.

Inflation target for 2020 was adjusted to 300 percent from 27 percent.

But in terms of revenue collection the annual target of $58,6 billion was unchanged.

Sidewoas says since the Treasury boss adjusted expected inflation for 2020, there was need for adjustments in other fiscal targets.

“The actual budget figures in Zimbabwe dollars remain detached from the real economy which has continued to rapidly re-dollarise. We would recommend being not only honest but brutally frank about the facts of the budgets' allocations that are supposed to change the economic fortunes of Zimbabwe.

“The mere fact that the implied annual inflation target has been revised upwards from 27 percent announced in the November 2019 budget speech for 2020 to 300 percent in the Mid-Term 2020 Budget Speech speaks to a similar revision being required for the tax revenue collection, expenditure and allocation targets for 2020,” said the researchers.

Although Government has maintained that the economy will continue on a de-dollarisation path, prevailing trends point otherwise, not least that the authorities themselves have re-allowed the use of United States dollar alongside the Zimbabwe earlier in March.

In another central development in this regard, Minister Ncube last week announced that the Intermediated Money Transfer Tax (IMTT) or 2 percent tax would be extended to US dollar transactions.

“I . . . propose to extend Intermediated Money Transfer Tax to cover foreign currency transactions, with effect from 1 August 2020.

“For the avoidance of doubt, transactions for organisations accredited in terms of the Privileges and Immunities Act (Chapter 3:03) remain exempt from IMTT,” said the Finance Minister.

The 2 percent tax came into effect on October 13, 2018 after it was gazetted in Statutory Instrument 205 of 2018, and has become one of the major tax bands.

Industry has also called for the fiscal authorities to clarify direction on the currency issue.

“The Minister has not quite indicated the direction we are taking with regards to the currency issue.

“For confidence building we need to see a plan on de-dollarisation that says over the next three, four or five years, these are the steps that going to be taken. This has not come out clearly in his (Minister Ncube)'s presentations,” said Confederation of Zimbabwe Industries president Henry Ruzvidzo.

The success of the re-introduction of the Zimbabwe dollar last year is underpinned by the Transitional Stabilization Programme (TSP), which comes to an end this year.

And Government has already indicated the development of the a successor plan.

But success of the new economic plan will also be dependent on the success of its predecessor. Sidewoas said transparency is key to the success of the TSP.

“We have previously highlighted the need for such an honest and frank approach if the Government is to realize its Transitional Stabilisation Programme (TSP) objectives.

“The underlying philosophy of the TSP is an aggressive and deliberate economic revival approach,” said Sidewaos.

“Any subsequent fiscal and monetary pronouncements must equally share this framework.

“Our economy is one that requires an honest appreciation and acknowledgement of daily realities in order to restore the necessary market confidence. The more uncertainty we create; the more harm we create.”

Success of the TSP will be affected by the Covid-19 pandemic, with latest forecasts projecting that Zimbabwe's economy will contract by 4, 5 percent this year, down from the earlier predicted 3 percent.

Notwithstanding the anticipated contraction, Minister Ncube has projected a current account surplus of US$1,2 billion, up from US$900 million in 2019.

Observers have also questioned these numbers and other presumptions.

“The Minister of Finance indicated that the Government had a surplus budget position and as such did not need a supplementary budget for the remainder of the year as only $30 billion of the budgeted tax revenue of $58,6 billion had been spent in the first half of the year against tax revenue collections of $34 billion.

“This leaves a balance of $28,6 billion of initially budgeted expenditure for the remainder of the year. This amount is equivalent to circa US$0,4 billion using the official Reserve Bank of Zimbabwe Auction Rate for foreign currency,” said Sidewaos.

“Based on the numbers given, it is our considered opinion that this figure falls far short of some of the country's impending high priority expenditure requirements, that is US$0, 2 billion to shore up the strategic grain reserve and US$0, 2 billion social security safety nets for Covid-19 affected families which would exhaust the entire remaining budget.

“This would be even before we get to issues related to health sector infrastructure requirements including protective personal equipment purchases, civil servants' salaries and other infrastructure capital expenditure gaps.

“It is against this background that we believe that the revenue and expenditure allocations highlighted in the budget speech do not give an accurate reflection of the actual real budget and budgetary shortfalls for the balance of the year.”