Finance minister Tendai Biti recently launched the 2012 Budget consultation programme which will culminate in presentation of Budget proposals to Parliament on November 16 2011.
I will probably not get the opportunity to attend any of the pre-Budget consultative meetings, so I have presumed to offer my two cents worth of input through this column.
For the record, I don’t speak for anyone other than myself, though I recognise that some of my views may be similar to those of other people. What follows is by no means exhaustive — it is just some of my thoughts on what I expect to see in the Budget. Call it a wish list if you will.
I would like to see a Budget that places more emphasis on the importance of a savings culture and discourages the piling up of undeserved debt. The consumerist spirit currently possessing many Zimbabweans must be exorcised. And one way of doing so is for the banking sector to expedite the formation of a Credit Reference Bureau.
It is not enough for me to just know that national savings will grow to 25% of gross domestic product by 2015, as if that will be a spontaneous, organic process. Such an important objective must be SMART — specific, measurable, achievable, realistic and timebound, as they say in corporate strategy! I expect the Budget to tell me how that medium-term objective will be achieved and what part I am expected to play now and in future.
What are the short-term targets? South Africa has the South African Savings Institute and Savings Month to promote a culture of saving. What have we? What legislative framework is required?
I will be expecting the Budget to announce an increase in the tax threshold. I know honourable Biti has already reportedly said the tax threshold cannot be increased just yet because that would result in loss of revenue.
I would like to urge him to reconsider his position because I think that an increase in the tax-free threshold would mean more disposable income in the pockets of consumers, which could in turn lead to an increase in demand for goods and services, with a commensurate increase in value added tax.
On the other hand, an increase in the tax threshold, if accompanied by appropriate incentives for savers, could result in the growth of a domestic pool of savings which can be tapped for developmental purposes.
Granted, the fiscal space is very narrow and not much can be done to stretch resources with limited plasticity, so I am looking forward to a budget that signals a radical change in our national mindset regarding how we spend what we have, something that doesn’t cost us money to do.
No gain is as certain as that which proceeds from the economical use of what you already have, so goes a Latin proverb. I don’t envy Biti’s position, what with an election hovering on the horizon!
I expect to see a Budget that prioritises export development. We have our erstwhile status as a low-cost producer and we need to start doing something about reclaiming it now.
The forthcoming Budget must show how that will be done. In any case, considering the lack of meaningful inflows from the Vote of Credit or Official Development Assistance, low domestic savings and the notoriously narrow fiscal space associated with low productivity, we have no choice but to enhance our export capacity and competitiveness in order to attract liquidity inflows into the country.
Previously, incentives were based mainly on enhanced foreign currency retention which is no longer applicable in the dollarised environment where funds can be held indefinitely in foreign currency accounts.
Going forward; export incentives have to take the form of initiatives that improve the productive capacities of exporters. The departure point would be to target factors that are currently militating against the productive capacity of exporters.
Arguably, the key limitation is lack of access to affordable long-term financing for retooling.
My proposal would be to reserve a portion — maybe what has not been drawn to date — of the Zimbabwe Economic Trade and Revival Facility specifically for exporters and link progressive drawdowns to export milestones/ thresholds, or to come up with a similar developmental facility for the export sector at concessionary rates of interest.
Given current liquidity challenges, export incentives that encourage timeous repatriation of export proceeds should also be considered as well so that money can circulate faster in an economy characterised by liquidity challenges.
This could take the form of duty rebates on imports of raw materials meant for production of export goods. Another export incentive could be to grant tax credits to banks that devote pre-agreed/pre-determined significant portions of their loan book to export development, in the same way that this principle could be applied to agricultural financing.
Lastly, I would like to see a budget that confidently tackles the issue of agricultural financing. The song of limited fiscal space has been well sung, so no walk-on-water performances are expected from the good minister.
However, there are things which the government can do without requiring money, such as prioritising the creation of an enabling policy environment in which private sector financing of agriculture can flourish. The current dilatory approach to the issue of security of tenure is not helping anyone.
The Budget should clarify when work to accord collateral value to 99-year leases for A2 farmers and A1 land resettlement permits will be finalised in order to give reassuring signals to the financial sector.
If that issue is sorted out, I do not see why the government cannot proceed to legislate for banks to achieve pre-agreed minimum thresholds for lending to agriculture, akin to what has been done in Nigeria.
What are your expectations in respect of the forthcoming Budget? Weigh in with your insights on email@example.com.
Omen N Muza is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd who writes in his personal capacity.