Building resilience, sustainable economic recovery
THE Transitional Stabilisation Programme (TSP) officially comes to an end in December 2020 and is being superseded by the National Development Strategy (NDS1) 2021 -2025. The Strategy seeks to consolidate and advance the achievements made under the TSP. The objective of NDS1 is to generate momentum towards increased growth resulting in more jobs, robust economic resilience and competitiveness.
A proposed 2021 Budget of $421,6 million was presented by the Minister of Finance and Economic Development yesterday. A budget deficit of $$30,8 billion (1,3 percent of GDP) is targeted in the year, representing a slight increase from the forecast 0,5 percent of GDP in 2020.
This deficit is in line with the fiscal consolidation of targeted deficits of below 2 percent of GDP throughout the NDS1 period. It is also within the SADC macroeconomic convergence threshold of 3 percent of GDP.
A clear challenge for fiscal discipline has been laid under the proposed budget and calls for strict monitoring and adherence.
The Minister alluded to that the total bids by the line ministries far outweighed what could be allowed under the strict limits that have been allocated. It therefore calls for responsibility and strict re-prioritisation of projects and expenditures within the Ministries.
The Minister proposed to finance the entire deficit through the domestic market. The proposed domestic borrowing plan is shown below:
Revenues are expected largely from tax collections aided by development partner support. In 2021, it is projected that Development Partner assistance will amount to US$841,5 million, of which US$559,3 million is expected from bilateral, whilst US$282,1 million will be from multilateral partners. A further icing on the cake will be diaspora inflows which must be continuously be harnessed.
What is of interest to note is the level of capital expenditures allocated within the proposed budget. Out of the $421,6 billion budget, capital expenditures constitute $131,6 billion (5,5 percent of GDP), while current expenditures are expected to consume $290 billion (12,1 percent of GDP).
This is a significant shift from the expenditure paten of the past. Major highlights in the expenditure allocations are goods and services ($59,4 billion), employment costs ($142,6 billion), interest ($1,5 billion) and transfers ($86,5 billion), with the balance reserved for capital development programmes.
The major assumptions driving the 2021 budget are summarised below. It is important to highlight though that significant risk still remains especially on factors like Covid-19, international mineral prices, good agricultural seasons and especially the control of wasteful expenditures by line ministries. This therefore calls for strict monitoring for those factors that are within the control of the Government save for the exogenous ones.
Overall the Minister has endeavoured to steer the ship on the correct path with several good indicators despite a few challenges.
The Good
• Macroeconomic stabilisation has brought some stability in real wages and stability is reinforced going forward by a strong fiscal position.
• Prioritisation and bringing forward of capital expenditures. The planned fiscal deficit should translate into improved infrastructure and service benefits for the population
• The provision of climate proofing agricultural activities including irrigation capacity building provided for in the budget
• Government is moving from pay as you go pension scheme to a fully funded pension scheme for the benefit of employees and provided $1,2 billion. It also plans to clear its pensions liabilities by utilising revaluation of assets (land and buildings)
• Recurrent expenditures consistently below 12 percent and employee costs below 7 percent of GDP throughout starting with this current budget
• Budget deficit 1,3 percent below the NDS target of 2 percent and within the SADC 3 percent threshold
• While public debt is currently above 78 percent of GDP, it is planned to decline to 64 percent in 2021.
The challenges
• Government must continuously review the remuneration of civil servants guided by macro fundamentals and capacity of the budget.
• Public debt still above the 60 percent threshold
• The dearth of strong international balance of payment support forces a reliance on the domestic debt which carries its risks on money supply.
• The build-up assumptions are still subject to significant risk and the Covid-19 pandemic is better considered as a new normal going forward. The country remains vulnerable to other exogenous factors such as droughts.
Overall, in aligning the 2021 budget to the theme and the NDS1 pillars, the Minister considered and considerably covered the following issues:
• To attain inclusive growth and macro- stability
• Need for developing and supporting productive value chains
• Optimising value in Zimbabwe’s natural resources
• Strengthening of infrastructure, ICT and the digital economy
• To provide adequate social protection, human capital development and well-being
• Attain effective institution building & governance
• Continue with efforts on engagement and re-engagement
It is within the context of the above considerations that the budget was crafted. The background is against a contracting global GDP contraction of 4,4 percent in 2020 and Zimbabwe’s own estimated 4,1 percent contraction. Across the sub region, a modest recovery is expected in 2021 with projections set at 3,1 percent. The Budget presented anticipates a sharp turnaround for Zimbabwe with a forecast 7,4 percent growth in 2021 and given the assumptions above, is attainable.
It is acknowledged that the stepping stone was laid through the TSP including the timely Government stimulus package of $18 billion in 2020 which was targeted at sectoral recovery.
In particular, the agricultural sector as shown by the winter wheat and pfumvudza programmes, industry support through the Medium-Term Bank Accommodation Facility, mining, tourism, manufacturing, construction for working capital purposes were all targeted beneficiaries
The budget is pro-growth and is adequately geared to support anticipated GDP projected recovery at 7,4 percent largely driven by agriculture, mining, construction and the energy and water sectors as summarised below:
This signifies and reinforces the Government’s shift in transitioning the economy to strong recovery building upon the TSP achievements.
It is apparent in the allocations that infrastructure investment activity has been brought forward while the forthcoming agriculture season and other productive sectors needs are satisfactorily addressed while taking cognisance of the need to maintain stability and not create any dislocations and resultant vulnerabilities.
In this light, the proposed budget deficit of 1,3 percent of GDP is deemed reasonable. It is within the SADC approved threshold guideline of 3 percent and more poignant is that it supports infrastructural developments which provide capacity for growth.
This is regarded as non-inflationary. The significant slow-down trend in inflation from August 2020 is therefore expected to continue into the year 2021.
The budget further consolidates the various fiscal measures on containing expenditures which bodes well with the current monetary targeting framework. It is anticipated that the relative stability in the foreign exchange market will also maintain sanity and integrity in the financial service sector in support of the proposed budget.
In conclusion, the authorities are urged to strictly monitor and censure any deviations that will immediately cause a slide in confidence of the market. The set targets are attainable and the proposed budget sets the tone for attaining the NDS1 plan and thereafter the vision 2030 of becoming an upper middle income economy.
Misheck is a former expatriate banker based in several SADC countries and currently works as a Corporate Advisory Services Consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is the Vice President of the Zimbabwe Economics Society.