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Budget proffers solutions, as we approach 2018   Featured

26 Jan 2018
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The Minister of Finance Hon Patrick Chinamasa presented the 2018 National Budget under the theme “New Economic Order” on 8 December 2017. The presentation came at a time when previous budgets have been recognizable but failed to provide substantive policy commendation.

 

The budget is progressive with a shift from the “modus operandi” of spending without looking at the source of funds and the budget presented a coherent set of guidelines for Foreign Direct Investment inflows and identified areas of consensus were methodological development is needed. The Minister articulated reforms for sustainable long-run growth which include cuts in government spending and moving from a consumption-led growth to investment-led growth.

  • The expected revenue collections for 2018 stand at $5.07 billion and government expenditure is targeted at $5.74 billion
  • Government employment costs stand at $3.27 billion.
  •          Expected budget deficit of $672 million, will be 3.5% of GDP

Amendment indigenisation law to limit 51:49 local ownership requirements to diamond and platinum mining only, shows a significant policy decision/change thereof to indicate a variation or departure from the previous policies which got the economy to mediocrity.Criticism and opposition to the indigenization legislation has been prevailing, and had damaged government's credibility and foreign investors' confidence especially in light of an unclear presentation and implementation of the law. Investors were finding the document confusing and inefficacious. Amendment of the Legislation will result in more investments trickling into the country given that investors simply prefer to invest in countries whose policies are consistent and favorable to market forces were attractive rates of return can be earned. The country last year attracted $319 million in FDI making it the least performer in the region with its neighboring countries such as Mozambique standing at $3 billion, South Africa ($2.3 bln) and Zambia ($469 million). 

Meanwhile, cost cutting measures that were introduced in the budget statement which include the recruitment freeze to be maintained across the board, save for critical posts, as determined by treasury in conjunction with service commissions and the move to retire staff above the age of sixty five, will help address the fiscal space. This fiscal space had remained constrained characterised by government budget deficits and borrowing from the domestic market which was being used to finance the gap. Cost cutting measures will see funds being channelled towards capital projects rather than recurrent expenditure.

Poor performance of government revenues against a background of high recurrent expenditure led to a large fiscal deficit. The fiscal deficit for 2016 is estimated at USD 1.042 billion (7.3% of GDP), against a target of USD 150 million. International best practice suggests that figures of no more than 50% should be adequate, with 56% and above considered perilous to government funded operations and projects, hence these measures need to be maintained in order to reduce the wage bill from consuming over 85% of Budget revenues

It is also commendable to note that government is on the drive to eradicate corruption given that it has had implications on the ease of doing business with waves of corruption scandals in strategic State-owned enterprises (SOEs) having been reported. The audit proposal on public office holders, not influenced by factional politics, personal squabbles or other self-seeking interests, is commendable as it is a step in stemming corruption.

Meanwhile, business can leverage on the Anchor Farmer concept which integrates commercial farming and smallholder farmer outreach, providing farmers with access to inputs, agronomic advice, and markets. The 2018 Budget proposed a 150% allowable deduction on expenditure related to technical and support services availed to smallholder farmers by anchor farmers. This concept will also be extended to manufacturing companies that sub-contract the production of goods to SME’s.

Business can also leverage on the anticipated surge in demand for electricity, for investment in power generation projects such as small hydro and solar plants to which the budget proposed to exempt power generation projects from corporate Income Tax for the first 5 years of operation, with effect from 1 January 2018.If the government “walks the talk,” the budget will make a difference to the faltering economy given government’s move to implement efficient economic models that will favour an increase in the productive capacity.

 

 

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