guest column

Analysis of 2020 Zim mid-term budget review

IN light of the COVID-19 pandemic, we all expected Finance minister Mthuli Ncube to present a supplementary budget, but he did not. What he presented, however, justifies the absence of the supplementary budget.

Mthuli reported on July 16 in his midterm national budget review that line ministries had hitherto spent only 46% of their budgetary allocation.

So seeing as that we are midway through the year, it does make sense to evaluate and assess the budget as opposed to introducing a whole new budget in the form of a supplementary one. The veracity of his figures though is another matter.

It takes a whole lot of trusting to fully believe the rosy picture he presented when analysed in line with what is obtaining on the ground.

Still on COVID-19, the healthcare sector is, of course, at the moment one of the most tested sectors in the country, lacking adequate equipment and consumables and personnel absenting themselves from work in industrial actions one after another.

The announced budget review offered healthcare workers tax exemptions, but the question on everyone’s mind now is that, is this enough to get the health sector back to work?

Let me start by saying, empirical studies all over the world have proved definitively that a nation’s productivity is a function of its health. The simple equation being “improved health delivery= an improved GDP [gross domestic product]”.

A case in point is the Abuja Declaration of 2005 signed by all but one African heads of State, which notes that “malaria has slowed economic growth in African countries by 1,3% per each year. The Organisation for Economic Cooperation and Development puts the combined nominal purchasing power parity GDP of Africa as a whole at US$6,36 trillion.

So simple mathematics will show that annual loss in Africa to malaria alone is US$82,7 billion. That’s an indication of the indispensability of health to a nation’s growth.

In Zimbabwe currently the whole service delivery is moribund. It is not just one disease or one department but sector wide.

So the powers-that-be should really appreciate that all other technical interventions to halt inflation and stimulate the economy will certainly need the health sector back on its feet.

An honest dialogue with the sector personnel is needed to ascertain what that “enough” salary number will be.

Immediately, I then want us to turn to the budget surplus, what does this mean, seeing that the budget is silent on issues of remuneration that were mentioned in public.

For the period January to June 2020, the minister said a budget surplus of around $800 million has been realised. This is a net figure as it takes account of the outstanding payments.

If your question is pertaining to actual salary increment announcement (or lack thereof), I will speculate here that it may have been to do with inflation management.

Firstly, it is elementary knowledge in economics that injecting sudden cash volumes into the economy without any corresponding increase in base productivity will most certainly lead to a demand pull surge in inflation digits.

As it is, he announced that Zimbabwe’s manufacturing sector will contract by 10,8% in 2020, against the initial projection of -1,9%.

With a projected fall in inflation the option was to increase employee emoluments inflation adjusted or arrest the inflation itself so it falls down to the people’s salaries.

Secondly, to stem supply push inflation, the minister is hoping to engage that surplus to stimulate industrial activity through capital projects like infrastructural development as compared to consumptive salary increments.

This may also have downstream benefits as employment numbers and other offshoot businesses may be boosted as a direct result of these projects.

The 200km dualisation of the HarareBeitbridge Highway and university student accommodation projects that he mentioned come to mind.

I should hasten to add though that if that is what is informing his decisions, then there is a need for a social contract with the affected parties.

For there to be universal ownership by all stakeholders, there needs to be engagement as compared with a topdown approach which may not fly without collective appeal.

He spoke of “fiscal restraint”. That phrase certainly calls for consensus because as we all know it is the masses being called to tighten their belts.

Projections of the growth of the economy was at 3 %, now projections are that the economy with will contract at -4% and it is the feasibility of this assertion which I turn to next, seeing as that the whole world at the moment is in some sort of recession due to COVID-19.

Projections by their nature are a shoot-in-the-dark then hope, kind of business.

In finance, however, we use past experiences and present indicators to come to the closest informed judgment, so all things being equal the aim is often not far from the mark.

The projection of negative 4% maybe very conservative for a country such as Zimbabwe beset with a myriad of socio-economic challenges.

More stable economies like Singapore which has for the past decade consistently averaged +2% growths annually has plunged into recession with a record GDP plunge of 41,2%.

Read full article on www.newsday.co.zw

 Admire Maparadza Dube is a financial analyst and banker. He can be contacted on admire.m.dube80@ gmail.com. He writes here in his personal capacity.