Thursday, 22 November 2018

AS MTHULI NCUBE PRESENTS FIRST BUDGET


FINANCE minister Mthuli Ncube will today deliver his maiden national budget statement in which he is expected to calm a spooked market and reassure the nation that the tanking economy can still be saved.

Ncube will have to convince Zimbabweans, the international community and sceptical investors that Harare is capable of embracing the needed reforms and making good on its financial obligations to lenders.

This year’s budget announcement is perhaps the most anticipated in the country’s history since dollarisation in 2009, as it comes amid an imploding currency crisis and runaway inflation, which have seen disruptions in the supply of basic commodities as well as fuel.
Growth prospects have been dampened, the mood is dull and confidence is low. All eyes are now on Ncube, who has already shown the direction that he will be taking in several highly publicised opinion pieces since taking over the Treasury hot seat and the Transitional Stabilisation Program (TSP), a policy blueprint which he launched soon after he was sworn into office. 

The TSP, which runs until 2020, focuses on fiscal consolidation, stimulating production and exports, governance reforms, restoration of fiscal balance and structural reforms to stimulate growth.

From his writings and the TSP, there is no doubt that Ncube understands just how dire the situation is and Zimbabweans can be certain that austerity measures are coming. He has indicated his desire to cut back on costly subsidies such as farmer support programmes.

Treasury data at hand shows that expenditure on agriculture has been one of the major components driving the budget deficit recently. 

Expenditure on the sector reached $1,1 billion at August 2018, against an annual budget target of $401 million.

Of this, $238m went towards command agriculture, $263m towards vulnerable input support scheme and $505m to grain procurement. 

Ncube has ambitious plans to reduce budget deficit to 4% of gross domestic product (GDP) in 2019, and 2,4% in the following year.

But of chief importance would be how the Treasury boss decides to address the country’s currency crisis after his initial plans to dump bond notes were apparently blocked.

Government still insists that the surrogate currency trades at par with the greenback, but trades at a premium of 260% on the more realistic black market. His first option is to completely dollarise the economy, the other option would be to join the Rand Monetary Union, a seemingly progressive move in the spirit of regionalism, but for this, Zimbabwe would need to establish its own currency. All the member states issue their own currencies: the Lesotho maloti, Namibian dollar and the eSwatini elangeni.

Closely tied to the currency reform will be how Ncube forges ahead with the debt clearance plan.

Zimbabwe is in dire need of fresh lines of lending at concessionary rates, but to access those, the country has to pay up its debts to international lenders.

Zimbabwe owes the World Bank $1,4 billion, the African Development Bank (AfDB) $600m. It also owes the Paris Club and several other international lenders $2 billion.
The budget is also expected to give direction on the agenda to reform State-owned enterprises, which continue to be a drain on the fiscus.

A number of them have been identified for partial privatisation through partnerships and listing on the Zimbabwe Stock Exchange and Ncube is expected to give the finer details.

Some analysts have already expressed a sense of optimism that Ncube, who is a former economics professor at Oxford University, will strive to restore fiscal discipline and bring confidence in the public finances after overseeing a balanced budget for the month of September, a trend he says will likely continue to the end of the year.

Ncube’s CV is more than impressive; he has authored 14 books in economics and finance, and holds a PhD in Economics (mathematical finance) from Cambridge University.

He has an extensive background in banking, having run a local bank and even rose through the ranks of AfDB to become its vice-president and chief economist.

There is no doubt that he has played at the highest level of the game, but government structures are complex, the processes are long and winding, the work culture is lethargic and, in Zimbabwe’s case, hangs on a system of patronage and corruption.

Identifying challenges and prescribing policy as an outsider is one thing, but to push through policy reforms in a Zanu PF government, one will certainly need much more than a Cambridge qualification and corporate swag. Newsday

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