2022 National Budget: Inspire confidence and desist from politicking
By Bernard Mpofu
Finance minister Mthuli Ncube is soon is expected to present the 2022 national Budget at a time millions of Zimbabweans have sunk into desperate levels of penury.
According to the World Bank half of Zimbabwe’s 15 million-strong population has plunged into extreme poverty between 2011 and last year due to massive job losses and a sharp drop in agricultural output, among a myriad of internal and external factors.
The same report titled Overcoming Economic Challenges, Natural Disasters and the Pandemic: Social and Economic Impacts also reveals that during the same period under review the number of people who became extremely poor more than doubled. It could cause embarrassment to the authorities in Harare who have painted a rosy economic picture since President Emmerson Mnangagwa rose to power in 2017.
Such empirical evidence presents a myriad of problems to Ncube and bureaucrats in the Finance Ministry who have the difficult task of drafting a fiscal policy document that will not only inspire confidence but establish building blocks to bring out millions from the miry clay of poverty.
Mthuli’s dilemma would be to strike a balance between populist pro-poor measures characterised by low taxes on individuals and taking heed of the International Monetary Fund (IMF) prescription on austerity measures.
As an admirer of neoliberal policies prescribed under the Washington Consensus, Ncube’s political gravitas will be put to test as he attempts to balance populism and austerity measures.
On one hand, the Finance Minister wants to be credited for tackling the huge debt overhang that has been an albatross around the government’s neck.
To do so, implementing several reforms prescribed by the Bretton Woods institution would make him unpopular within the civil service which has been crying for wage reviews and a bonus at the end of the year. On the other, the head of treasury has to pamper millions living in rural areas with agricultural subsidies which in turn will drive domestic debt.
The IMF, which seems to have adopted a carrot-and-stick approach to carry out a staff monitored programme to deal with the country’s ballooning $10,7 billion debt, opposes any further upward adjustment to the public service wage bill.
The Oxford University-trained Economics Professor and former African Development Bank Vice President could be tempted to craft policies that could sway votes to the governing Zanu PF by announcing an early Christmas gift for resentful government workers and more subsidies to cushion the poor.
As the 2023 elections beckon, war veterans, who have traditionally been one of the major driving forces behind Zanu PF campaigns appear divided—the haves and have-nots.
The latter are unhappy over their monthly payouts which have been wiped out by inflation which rose during September (2021) and is expected to continue doing so as the local unit weakens.
As the cost of living continues to rise and the Zimbabwean dollar further depreciates, authorities will face enormous pressure of printing more money, which will resultantly push inflation. Bread and butter issues will shape the outcome of the elections.
The Total Consumption Poverty Line (TCPL) for Zimbabwe stood at $6,653.65 per person in September 2021. This means that an individual required that much to purchase both non-food and food items as of September 2021 in order not to be deemed poor. This represents an increase of 4.8 per cent when compared to the August 2021 figure of $6,350.29.
The future currency is another contentious issue expected to be tackled in the Budget. Since dollarisation, most companies and individuals have struggled to access the United States dollar but it remains the currency of choice as the domestic unit continues to lose value.
The central bank which for more than a year has been managing the official exchange rate system gave in to pressure from business leaders to further depreciate the Zimbabwean dollar as the discrepancy between the formal exchange rate and the parallel market continue to widen.
The World Bank and business organisations have over the past months urged the central bank to liberalise the Dutch auction system.
The Reserve Bank of Zimbabwe (RBZ) chief, John Mangudya who was up until September convinced that year on year inflation would fall below 50% was and remains reluctant to liberalise the market as this will trigger inflation and possibly fuel social unrest. Memories of the 2019 food riots remain fresh.
Revelations by the Reserve Bank Governor John Mangudya that US$2billion is circulating outside the formal banking system point to the lack of confidence depositors have in the banking system. One wouldn’t blame Zimbabweans for the low confidence as yesteryear memories of hyperinflation remain etched on their minds.
Lack of access to clean water and the dilapidated state of key infrastructure are also some of the main social problems confronting Ncube as he presents the budget.
Access to affordable healthcare is expected to take centre stage in the forthcoming Budget.
While responding to issues raised by the Portfolio Committee on Health ahead of the 2022 budget, Vice President Constantino Chiwenga who doubles as Health and Child Care Minister proposed a beer and cigarettes tax or sin tax to fund healthcare services in the country. But imbibers and smokers will have to pay an arm and a leg for this.
Economists however say an alcohol and tobacco levy proposed by the government to fund healthcare services in the country, though noble, will push up inflation, reduce volumes for beverage makers and cigarette makers as well as further overburden the citizens with additional taxes
In a development that may present the much-reported budget surpluses as a phantom phenomenon, Chiwenga also proposed that a certain percentage of the Zimbabwe National Roads Authority funds be ring-fenced to finance health services such as purchasing of ambulances required in cases of road traffic accidents and the treatment of victims of accidents requiring hospitalisation.
To finance the budget, the government is squeezing everyone.
With no budgetary support due to a huge external debt, Treasury has been relying on domestic resources to finance capital projects. This, however, has resulted in limited funding for social spending, thereby exposing vulnerable groups to the harsh economic environment.
What can be done?
With no budgetary support to meet some of its critical expenditure, Zimbabwe has for years been depending on domestic resources to finance its programmes. The taxpayer has continued to tighten his belt as treasury continues to squeeze out revenue across all sectors.
In 2022, the Finance Minister should among other tax reforms stimulate domestic consumption as this will also help local industry tick.
Zimbabwe cannot continue to be isolated from the international financial system. Normalising relations with international financial institutions such as the World Bank, International Monetary Fund and AfDB should be one of the government’s top priorities.
As Zimbabwe pushes to normalise relations with its creditors, the government should endeavour to develop comprehensive trade development strategies such as export-oriented industrialisation which will dovetail with the African Continental Free Trade Area or rather South-South cooperation.
Last but certainly not least, there is a need to develop North-South partnerships which will help in promoting skills and technology transfer.
After all, is said and done, one can conclude that it’s politics stupid. Yes, the country toxic politics makes each year appear like an election year where sloganeering, mudslinging, plots and counterplots are the order of the day.