Finance and Economic Development Minister Mthuli Ncube is
today expected to present his 2019 Mid-Term Budget Review Statement, amid high
expectations for measures to improve disposable incomes, boost production and
protect the value of the local currency.
Little to no shock therapy interventions are anticipated
from the minister’s Budget review, but
measures to facilitate consolidation and the march towards prosperity, after he
said recently that major reform measures had been completed.
The Treasury chief is on record as saying following a
series of policy reforms since his US$8,2 billion 2019 Budget in November last
year, focus shifts towards driving production.
However, a supplementary budget may well be up his sleeve
after currency reforms that saw the adoption of a local currency, which has
lost ground against major currencies.
The statement comes against the backdrop of foreign
currency shortages, high inflation, rolling power outages, low industrial
production and the shortage of cash,
among other issues which the Budget must speak to.
Minister Ncube’s economic reform measures under the
Transitional Stabilisation Programme (TSP) designed to correct ills of the
past, have inadvertently made life unbearable for the majority.
These include the separation of nostro and RTGS accounts,
liberalisation of the foreign exchange market and fuel procurement, the
introduction of 2 percent intermediated money transfer tax, removal of the
multi-currency regime and return of the local unit as the sole legal tender.
In the intervening period, Zimbabwe’s annual inflation
raced from 5,39 percent in September 2018 to 175,66 percent by June 2019,
raising fears of a repeat of the crisis and hyperinflation that rocked the
country in the decade to 2008.
Of late, inflation has largely been driven by steep
premiums from foreign currency trading on the black market where a number of
businesses bought hard currency to import goods; including raw materials used
in production.
While the country’s inflation rate has bolted, salaries and
wages for employees have remained largely stagnant, pushing most basic goods
beyond the reach of the majority.
Similarly, the value of pensions has been eroded; the
second time in a space of two decades.
Economist and former Bulawayo East Member of Parliament
Eddie Cross said it was critical that Minister Ncube gave an account of how far
he has gone with reforms under TSP.
“I think he will give some overall review of the reform
programme. He must tell us how far he has gone with the reform programme under
TSP (Transitional Stabilisation Plan 2018-2020).
“I think it’s very important if he gives us a summary of
what he is going to do to restore the living standards of the people,” he said.
Critically too, he said the minister should announce measures to increase workers’ disposable
incomes (by adjusting Pay As You Earn bands) to cushion them from high
inflation.
“There have been some challenges with regards to P.A.Y.E,
he needs to adjust that. I think he is going to give people more disposable
incomes (wider tax bands) and then I think he’s got some idea of where things
are going; those are the three main priorities,” Mr Cross said.
Mr Cross added that in terms of fiscal consolidation, the
minister had got “that well in hand” and he expected him to report that in his
midterm review statement this afternoon.
“What will (also) be very interesting is to see if he’s got
an idea on how to improve liquidity and I think he’s going to announce that
they are going to buy back some of the Treasury Bills that they have got out
there with the banks,” he said.
The finance minister, he suggested, might also announce
something on import duties. “I know that he is going to make solar components
duty free,” Mr Cross opined.
Harare economist, Dr Gift Mugano said major reform
predictably over, tax breaks for companies that support value chain were
critical to reduce appetite for imports.
“I think he is going to give tax breaks. The whole mantra
should now be on production so that we support the (local) currency. Without
production the currency is going to weaken, so we need to come up with a number
of fiscal incentives to promote production,” he said.
Dr Mugano said the fiscal incentives should target items
such as agricultural produce, cereals as well as manufactured produce, which
can be produced locally, such as pharmaceuticals and fertilisers, as these were
consuming a lot of forex.
Zimbabwe recently launched a new industrialisation policy,
which has a value chain strategy in it. Dr Mugano said these value chains
needed financing by companies.
“So, companies which are financing backward value chains
throughout…should be given tax holidays,” he said, adding this will reduce
pressure on foreign currency and upward swings of exchange rates.
He said Minister Ncube also needed to raise workers’
disposable incomes to give impetus to low income earners to “consume because
right now we are in a low demand trap, which can cause recession”.
“I think what he also needs to reaffirm is the issue that
there is not going to be any surprises because too many (economic policy
reform) surprises are creating challenges of deficit of confidence,” he said.
Following the cocktail of shock policy changes, Dr Mugano
said, Zimbabwe more than ever before now needed economic stability, policy
predictability and consistency.
“So we are here, we have landed; we now have a currency. I
do not think we need more surprises going forward. It’s a midterm budget
review, so I don’t think there is much we should expect from him.
“From a fiscal point of view, he must not run into budget
deficit beyond 5 percent, which he stipulated because once he does that he has
to finance the deficit and that will require more Treasury Bills to go out
there and it becomes inflationary,” he said. orrect ills of the past, has
inadvertently made life a bit unbearable for the majority.
These include separation of nostro and RTGS accounts,
liberalisation of foreign exchange market and fuel procurement, introduction of
2 percent intermediated money transfer tax, removal of multicurrency and return
of local currency as sole legal tender.
In the intervening period Zimbabwe’s annual inflation raced
from 5,39 percent in September 2018 to 175,66 percent by June 2019, invoking
fears of a repeat of the crisis and hyperinflationary era that rocked the
country in the in decade to 2008.
Of late, inflation has largely been driven by pass through
effects of the steep premiums from foreign currency trading on the black market
where a number of businesses bought hard currency to import goods; including
raw materials used in production.
While the country’s inflation rate has bolted, salaries and
wages for employees have remained largely stagnant, putting most basic goods
beyond the reach of the majority.
Similarly, the value of pensions has been eroded; the
second time in a space of two decades.
Economist and former Bulawayo East Member of Parliament
Eddie Cross said it was critical that Minister Ncube gave an account of how far
he has gone with reforms under TSP.
“I think he will give some overall review of the reform
programme. He must tell us how far he has gone with the reform programme under
TSP (Transitional Stabilisation Plan 2018-2020).
“I think it’s very important if he gives us a summary of
what he is going to do to restore the living standards of the people,” he said.
Critically too, he said the minister should announce
measures to increase workers’ disposable incomes (by adjusting Pay As You Earn
bands) to cushion them from high inflation.
“There have been some challenges with regards to P.A.Y.E,
he needs to adjust that. I think he is going to give people more disposable
incomes (wider tax bands) and then I think he’s got some idea of where things
are going; those are the three main priorities,” Mr Cross said.
Mr Cross added that in terms of fiscal consolidation, the
minister had got “that well in hand” and he expected him to report that in his
midterm review statement this afternoon.
“What will (also) be very interesting is to see if he’s got
an idea on how to improve liquidity and I think he’s going to announce that
they are going to buy back some of the Treasury Bills that they have got out
there with the banks,” he said.
The finance minister, he suggested, might also announce
something on import duties. “I know that he is going to make solar components
duty free,” Mr Cross opined.
Harare economist, Dr Gift Mugano said major reform
predictably over, tax breaks for companies that support value chain were
critical to reduce appetite for imports.
“I think he is going to give tax breaks. The whole mantra
should now be on production so that we support the (local) currency. Without
production the currency is going to weaken, so we need to come up with a number
of fiscal incentives to promote production,” he said.
Dr Mugano said the fiscal incentives should target items
such as agricultural produce, cereals as well as manufactured produce, which
can be produced locally, such as pharmaceuticals and fertilisers, as these were
consuming a lot of forex.
Zimbabwe recently launched a new industrialisation policy,
which has a value chain strategy in it. Dr Mugano said these value chains
needed financing by companies.
“So, companies which are financing backward value chains
throughout…should be given tax holidays,” he said, adding this will reduce
pressure on foreign currency and upward swings of exchange rates.
He said Minister Ncube also needed to raise workers’
disposable incomes to give impetus to low income earners to “consume because
right now we are in a low demand trap, which can cause recession”.
“I think what he also needs to reaffirm is the issue that
there is not going to be any surprises because too many (economic policy
reform) surprises are creating challenges of deficit of confidence,” he said.
Following the cocktail of shock policy changes, Dr Mugano
said, Zimbabwe more than ever before now needed economic stability, policy
predictability and consistency.
“So we are here, we have landed; we now have a currency. I
do not think we need more surprises going forward. It’s a midterm budget
review, so I don’t think there is much we should expect from him.
“From a fiscal point of view, he must not run into budget
deficit beyond 5 percent, which he stipulated because once he does that he has
to finance the deficit and that will require more Treasury Bills to go out
there and it becomes inflationary,” he said. Herald
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