Against a backdrop of uncertainty ahead of elections and a liquidity crisis, will Finance minister Tendai Biti downgrade his positive growth forecasts, or present an upbeat national budget with a consistent approach to long-term planning and increased production?
Will Biti reiterate that economic policies should focus on the country’s longer-term interests and highlight the dangers of policies “designed for populist appeal”?
How will he deal with the country’s financial health and liquidity challenges at a time when the world financial markets are recovering from a “destructive implosion”.
What will Biti say about the performance of the current budget? Will his revenue projections be realistic and where will the money come from?
Is he going to rely on money from multilateral institutions such as the International Monetary Fund and the World Bank to meet the budget’s shortfalls?
Is he going to heed President Robert Mugabe’s request for $200 million for elections?
Will he say anything on the “controversial” statutory instrument 154 of 2010: Road Traffic (construction, equipment and use), which among other demands seeks to ban the use of left-hand vehicles and second-hand cars?
These are questions Zimbabweans hope will be answered when Biti announces the 2011 National Budget on Thursday.
Finance consultant Sonny Mabheju told NewsDay that more funding must be allocated to economic performance enablers like the energy ministry, particularly to Zesa, water and sewerage, telecommunications and roads.
“Education should be included since it underpins the environment for sustainable economic development on an ongoing basis,” he said.
“These are important because no meaningful investment can be attracted to the productive sector until these important enablers have been restored to normal levels of operation with guaranteed reliability,” Mabheju said.
He said the budget should be funded from normal sources of government funding such as government revenue, which includes various tax revenues and non-tax revenues and government borrowings.
“Seigniorage will not be a source of funding in 2011 because Zimbabwe is not issuing its own currency,” Mabheju said.
Mabheju said: “Tax revenues have their own social and market consequences and already there were calls for government to reduce individual income tax levels.
Most taxes are not yet being collected at optimum levels because the economy is still in a state of recovery. The same can be said for non-tax revenues,” he said.
Last year Biti presented a budget proposing to spend $2,25 billion against revenues of $1,44 billion showing a $810 million deficit amid hopes international donors would chip in.
Economist Brains Muchemwa told NewsDay that the corporate bankruptcy was on the rise in Zimbabwe, and urged Biti to advocate for changes in the country’s labour and bankruptcy laws to safeguard corporate solvency and create a soft landing for most companies that are on the brink of collapse.
“Without these, the economy will remain fragile, and indeed government revenue will continue to exhibit sustained weakness,” he said.
“Government will need more creativity to broaden the tax revenue base in ensuring that the financing of the budget was sustainable in a manner that would be able to influence the macroeconomic activities more positively,” Muchemwa said.
Muchemwa said new taxation laws need to be seriously considered for valuable mineral classes such as diamonds and platinum.
He said without this measure incremental revenue from the normal taxation activities will continue to be fragile.
Economist David Mupamhadzi told NewsDay that the 2011 National Budget was coming at a time when government should move the economy from stabilisation to growth.
“Key to achieving sustained growth of the economy is the issue of the enablers in the country. There is more pressure in the economy now to address the issue of enablers as the key drivers of the economy going forward,” Mupamhadzi said.
“However, the nation should be realistic, and understand that the National Budget, which is driven by the principal of cash budgeting, is not adequate to address the structural problems currently affecting the sustained recovery of the economy.
“Thus there is an urgent need for the government to look at how they can create fiscal space to fund the critical requirements of the economy,” he said.
Muphamhadzi said the issue of fiscal space is critical to ensure that some of the public expenditures which cannot be accommodated through the National Budget are covered.
“The government is faced with huge challenges of restoring infrastructure and other public utilities which cannot be financed by the current levels of revenue in the economy. Thus, besides grappling with sectoral allocations, of a severely limited cake, more focus should be put on the creation of fiscal space,” he said.
He said one of the key issues that should emerge from the National Budget was a shift of policy towards developmental thrust, to ensure that the country begins to enjoy broad- based or inclusive growth.
“More often economies register huge growth rates but the growth doesn’t translate to poverty reduction or job creation but only helps to widen poverty levels,” he said.
Economic consultant John Robertson said Biti should allocate more money to sectors that have strong primary multiplier effects on employment creation so that the secondary effect on government revenue creation will assist equally in repaying the loan and put the economy on a sustainable growth path.
“We need to start creating the platform for reviving the defunct middle class. And the government, being the single largest player in the market now, should have the right priorities in place to create a sustainable middle class to cultivate strong and rising domestic demand that will provide the vital anchor for growth,” Robertson said.
Muchemwa said Zimbabwe needed a strong private-public sector partnership framework that would revive its infrastructure much faster and put an end to fiscal antics of attempting subsidies on empty coffers.
“An economy, just like a private company, needs to run on goodwill and competitive economic pricing. And with the dollarised economy, good times lie in waiting,” said Robertson.
Zimbabwe National Chamber of Commerce (ZNCC) president Trust Chikohora told NewsDay that the minister should review downwards the pay as you earn tax system with the maximum being around 30%.
“The minister should consider a two-tier approach whereby the general tariff rate on passenger motor vehicles shall be reduced to a flat rate of 15%,” he said.
“We are suggesting that a lower tariff rate of 7,5% could be allowed where it can be proved that the vehicles were purchased on a vehicle finance scheme so as to encourage banks to offer vehicle financing to the public,” Chikohora added.
He said banks must be encouraged to offer viable interest rates on deposits while at the same time the financial services sector, which stands accused of looting depositors through low interest rates on deposits and high lending rates, should begin to publish their rates.
“In order to encourage the development of a money market, government should allow financial institutions to offer an investment paper that has a prescribed asset status,” he said.
“The investment paper can then be used as collateral and also be traded in the secondary market, thereby encouraging flow of credit as well as trading among various entities,” he added.