Bud­get state­ment re­view

The Sunday Mail (Zimbabwe) - - BUSINESS - Dr Gift Mugano

MIN­IS­TER of Fi­nance and Eco­nomic De­vel­op­ment Pro­fes­sor Mthuli Ncube last week pre­sented the 2019 Na­tional Bud­get state­ment. It’s pri­mary ob­jec­tive is to sta­bilise the econ­omy by tar­get­ing the “twin deficits” of fis­cal and cur­rent ac­count, which have be­come ma­jor sources of over­all eco­nomic vul­ner­a­bil­i­ties, in­clud­ing in­fla­tion, sharp rise in in­debt­ed­ness, ac­cu­mu­la­tion of ar­rears and for­eign cur­rency short­ages.

From a di­ag­nos­tic point of view, the min­is­ter got our prob­lems right and his pre­scrip­tions, which are out­lined here, were well thought.

Prof Ncube com­mit­ted that Gov­ern­ment em­barked on a pol­icy stance to grad­u­ally re­duce the Bud­get deficit to sin­gle digit level, hence, tar­get­ing 5% of GDP for 2019; 4,1% in 2020 and 3% in 2021. In the same vein, he un­der­scored that Gov­ern­ment has com­mit­ted to re­duce re­course to the Cen­tral Bank lend­ing from the 20% of pre­vi­ous year’s rev­enues statu­tory limit, to a max­i­mum of 5% con­fined for pur­poses of smoothen­ing cash flow mis­matches. In or­der to meet this tar­get, the min­is­ter came up with prac­ti­cal ex­pen­di­ture con­tain­ment mea­sures, ad­dress­ing cur­rent ac­count im­bal­ances, re­forms, fis­cal in­cen­tives and aus­ter­ity mea­sures.

Ex­pen­di­ture con­tain­ment mea­sures

With ef­fec­tive from 1 Jan­uary 2019, Gov­ern­ment is in­tro­duc­ing a 5% cut on the ba­sic salaries for Prin­ci­pal Di­rec­tors, Per­ma­nent Sec­re­taries and their equiv­a­lents, Deputy Min­is­ters, Min­is­ters and the Pre­sid­ium.

This is also ex­tended to ba­sic salaries of those in des­ig­nated posts in State Owned En­ter­prises (CEOs, Ex­ec­u­tive Di­rec­tors and equiv­a­lent grades), in­clud­ing Con­sti­tu­tional Com­mis­sions and grant aided in­sti­tu­tions. This is an ex­cel­lent move.

Gov­ern­ment also com­mit­ted to pay civil ser­vants’ bonuses.

How­ever, in or­der to re­duce the bur­den on Trea­sury, the civil ser­vice bonus will be com­puted based on the ba­sic salary only (ex­clud­ing hous­ing and trans­port al­lowances) and will be paid in 2018.

Gov­ern­ment has also re­solved to re­duce the num­ber of for­eign mis­sions, thereby op­ti­mis­ing the util­ity value re­alised from the re­main­ing mis­sions as well as avoid­ing ac­cu­mu­la­tion of ar­rears and em­bar­rass­ing evic­tions of our diplo­mats.

Gov­ern­ment will re­tire 2 917 Youth Of­fi­cers by end of De­cem­ber 2018.

Of­fi­cials who reached 65 years of age will also be re­tired. This was long over­due.

Cur­rent ac­count deficit

Gov­ern­ment noted with con­cern the fact that Zim­babwe ex­ports are largely un­com­pet­i­tive due to cost and in­ef­fi­cient pro­duc­tion.

In ad­di­tion, the coun­try re­lies on pri­mary com­mod­ity ex­ports, which are of less value com­pared to high value pro­cessed goods. In ad­di­tion, the im­port bill has been dom­i­nated by a wide range of im­ports, some of which are not crit­i­cal or strate­gic.

In ad­dress­ing this anom­aly, Prof Ncube an­nounced a num­ber of in­dus­try sup­port mea­sure which in­ter alia in­clude: ◆ Fab­rics that are not lo­cally pro­duced will qual­ify for the cloth­ing man­u­fac­tur­ers re­bate, with ef­fect from 1 Jan­uary 2019. In or­der to sup­port the dairy sec­tor re­sus­ci­ta­tion strat­egy, Gov­ern­ment pro­posed to in­crease the ring-fenced milk pow­der re­quire­ments for 2019, with ef­fect from 1 Jan­uary 2019. In or­der to re­duce the cost of pro­duc­tion for the bak­ing in­dus­try, thereby min­imis­ing price es­ca­la­tion, Gov­ern­ment pro­posed to in­tro­duce duty free im­por­ta­tion of raw ma­te­ri­als un­der a Man­u­fac­tur­ers Re­bate, with ef­fect from 1 Jan­uary 2019. In or­der to mit­i­gate against po­ten­tial short­age of poul­try prod­ucts as a re­sult of the Avian In­fluenza and re­store vi­a­bil­ity of the in­dus­try, Gov­ern­ment pro­posed to ringfence duty free im­por­ta­tion of fer­til­ized eggs for the year 2019, with ef­fect from 1 Jan­uary 2019. In or­der to en­hance com­pet­i­tive­ness of lo­cally man­u­fac­tured fer­tiliser, Gov­ern­ment pro­posed to ring-fence duty free im­por­ta­tion of raw ma­te­ri­als, with ef­fect from 1 Jan­uary 2019, for a pe­riod of twelve months

Re­forms

The 2019 Bud­get pro­poses speed­ing up of ease of do­ing busi­ness re­forms, in­clud­ing the long awaited op­er­a­tional­i­sa­tion of the Zim­babwe In­vest­ment and De­vel­op­ment Agency (ZIDA). In the same vein, Gov­ern­ment an­nounced that it will fi­nalise set­ting up of a Com­modi­ties Ex­change, hence open­ing up space to pri­vate sec­tor play­ers and shift­ing the bur­den from the fis­cus as well as spear­head­ing the paras­tatal re­forms.

Aus­ter­ity mea­sures

In or­der to re­di­rect use of the scarce for­eign cur­rency to the pro­duc­tive sec­tors of the econ­omy, Gov­ern­ment pro­posed that cus­toms duty on mo­tor ve­hi­cles be levied in for­eign cur­rency with ef­fect from 23 No­vem­ber 2018. This mea­sure will also ap­ply on all im­port VAT and Sur­tax.

Gov­ern­ment noted with con­cern that notwith­stand­ing the fact that com­pa­nies are ap­pointed as agents that col­lect rev­enue on be­half of Gov­ern­ment, some com­pa­nies are not re­mit­ting VAT in the cur­rency of trade and are tak­ing ad­van­tage of the ar­bi­trage op­por­tu­ni­ties on the in­for­mal mar­ket.

In or­der to con­tain such prac­tices, Gov­ern­ment pro­posed to com­pel com­pa­nies that col­lect VAT in United States dol­lars or any other cur­rency to re­mit VAT us­ing the same mode of pay­ment. This mea­sure will ap­ply on all other taxes.

With ef­fect from 1 De­cem­ber 2018, the min­is­ter pro­posed to in­crease ex­cise duty on diesel by 7 cents per litre and 6.5 cents for petrol.

This is meant to re­duce the ar­bi­trage op­por­tu­ni­ties.

This will ob­vi­ously re­sult in an in­crease in the price of fuel but in the spirit of rais­ing rev­enue and mit­i­gat­ing ar­bi­trage op­por­tu­ni­ties, which have come on the back of the low real prices in com­par­i­son with re­gional peers, this mea­sure is in or­der.

Over­all, the Bud­get con­tained the right so­lu­tions for this econ­omy.

Prof Ncube even linked his bud­get to the Tran­si­tional Sta­bil­i­sa­tion Pro­gramme, which is key in pol­icy im­ple­men­ta­tion. Dr Mugano is an econ­o­mist. He holds a PhD in Eco­nom­ics and is a Reg­is­trar at Zim­babwe Ezekiel Guti Univer­sity. Feed­back: [email protected]; Cell: +263 772 541 209

Newspapers in English

Newspapers from Zimbabwe

© PressReader. All rights reserved.