The Treasury boss, Hon. Patrick Chinamasa delivered the country’s Mid Tem Fiscal Policy Review last Thursday. The review came at a time where expectations are high to address unemployment that has been further fuelled by the recent loosening of labour laws, amid banning of vendors in the CBD.
The Zimbabwe National Chamber of Commerce [ZNCC] notes with concern the ever widening budget deficit with second half revenue sitting on $US 1.8 billion whilst expenditures breached the US$2.118billion mark. We are worrying on how this budget deficit will be financed, if the government is to borrow to plug this gap, at what cost to the fiscus is it going to secure the funds or what return to the shareholders if banks are funding the gap. Generally speaking, treasury bills averaging 2% per annum is certainly not a funding mechanism to talk about. This compels us to push for the urgent restructuring of parastatals as the opportunity cost of missing revenue from government enterprises is becoming much more felt as we move into the distant from the time we officially dollarized.
ZNCC notes with concern that GDP growth rate now pegged at 1,5% has drastically plummeted by half from the initial projections of 3,2%, while government revenue forecast had been revised to US$3.6 billion from US$3.99billion with a forecast fiscal deficit of US$400 million.
A negative balance of payment also poses a threat to any possibility of returning to our own local currency. When the trade deficit widens, it implies the economy will find it difficult to sustain its own currency regime. Though exports grew by a mere 0.4% to US$1.3billion, imports spiked up by 2% to US$3.1billion.
How the gap is to be slashed can only be a long term process, even though they was an increase in surtax on second hand vehicles from 25% to 35%, the ban on importation of second hand clothes and the removal of basic goods from the travellers rebate, this might not be a sufficient revenue raising mechanism to close the gap going forward. However we raise concern that the blanket ban of second hand clothes will have an adverse impact on the poor and unemployed who can’t afford to purchase new clothe in the formal sector.
The Mid term statement highlights that the prevailing usurious lending rates are delaying the recovery of the manufacturing sector, given that the cost of credit is toxic. We compel the government to expedite the process of negotiating cheaper lines of credit and embracing the value chain systems by not funding hopeless companies which can only be a drain to the fiscus.
Non perfoming parastatals have ‘amazing’ salary accruals with the NRZ owing $140 million, Air Zim about $136.4million and GMB owing about $20 million. Such a state significantly renders these parastatals technically insolvent. The state needs to take urgent steps to reform such parastatals given that even the ZIMASSET document is premised on the efficiency of these state enterprises. A bloated cum unsustainable current expenditure is definitely a function of government’s unnecessary pressure to bail out the perennially unprofitable state owned enterprises.
Civil service retrenchments is a convenient option but we do not see it as a permanent solution to reducing government expenditure to 40% of GDP, however the entire retrenchment exercise must be treated with caution as it can further strain the already unimpressive tripartite relationships amongst government, labour and business.
This budget review comes out quite strongly on taxes and much weaker on reforms. There is an urgent need to strengthen the management framework in parastatals, local authorities and government departments if we really care about sustainable recovery of the private sector. Duties and flexible labour laws alone may allow companies to leave for now in order to die another day.
The proposed electricity tarrif reduction from 12,76 cents/kWh to match the regional levels should lower the cost of production for local manufacturers of both food and non food items. In addition, the mining sector, whose major cost of production is energy, stands to also benefit from this tarrif reduction. Such companies include Delta, Innscor, Dairibord, Bindura, Nickel, Rio Zim, Hwange Colliery and other manufacturers.
Reintroduction of duties on various selected food items protects the food processing companies such as Dairibord, Innscor, and Colcom etc. There however is a downward risk to this. There is likely to be a insignificant cost push inflation in the short to medium term for these basic goods. Unless they are inelastic, we should witness a slight drop in sales volumes of the retail companies.