BY FIDELITY MHLANGA
FINANCE minister Mthuli Ncube faces a daunting task on how to balance his revenue generation and expenditure as he presents the 2020 budget today; at a time the economy is on a tailspin characterised by high inflation, skyrocketing prices of goods and cash shortages.
Two-thirds of the country’s population is food insecure and the country is also reeling from power shortages.
With runaway inflation hitting the economy, Ncube faces the headache of balancing his books and stabilising the economy.
In his budget strategy paper, Ncube tabled an ambitious $14 billion revenue target by the end of this year, despite only collecting a paltry 35% of that figure in the first half of the year.
Ncube told legislators at a pre-budget meeting that this year was unique due to a high inflationary environment, announcing that total expenditure ceiling was being revised upwards from $28 billion by a factor above 30%.This revision put budget expenditure at $36 billion against anticipated revenue generation of about $14 billion.
Already, Treasury is auctioning Treasury Bills as a way of bolstering its revenue base.
“We can’t print ourselves out of our problems. We expect him to present a budget of over $140 billion but with the current revenue generation trend it will be difficult to have that amount. Government should realise that plays a facilitation role and it is not an economic actor. It should create an environment where private capital flows in the economy. Ncube must look for other means of seeking revenue ,” economist, Paul Gundani said.
He said it was high time authorities relaxed the tax burden from the hard-pressed Zimbabweans.
Inflation and price stabilisation
If government funds its deficit through money printing, inflation and prices will go berserk.
Budget deficit normally creates a room for money creation through Treasury Bills and overdrafts widening domestic debt and stoking inflation upwards.
When government ditched the announcement of inflation figures, it was at 176% in June this year. But economists employing the month-on-month data, have put implied annual inflation at 353% as of September this year.
Gundani warned government against indulging in a money printing spree as this would push inflation and prices northwards.
While on June 24, through SI 142 of 2019 also known as Reserve Bank of Zimbabwe (Legal Tender) Regulations, government “abolished” the use of multiple currencies, the reality on the ground suggests that the greenback is still the dominant currency among people.
Government has also allowed miners to pay bills using forex and certain businesses deemed to be tourist facilities were given the nod to transact in US dollars.
Another economist John Robertson said the budget must bring the much-needed confidence to the public.
“We need the budget to bring the much-needed trust and confidence. The government has not kept any promises and as a result, the trust has disappeared. Without trust people will not be having confidence on the government. Trust comes through the recognition of civil, human and property rights. If they are not protected it becomes a problem,” said Robertson.
While authorities have set up the interbank market to allow the trading of forex, companies are battling to access it. The huge chunk of forex is traded on the black market at obscene rates.
“Government through the budget must regulate banks to ensure that they do not participate on the black market. So we hope that the banks involved in feeding the black market will have their licences revoked. We need discipline. We need to have the interbank working,” Robertson said.
While the central bank has rolled out new notes and coins in the market, it is yet to be seen whether the cash crisis that is punishing citizens by incurring 60% premiums to access their hard-earned cash will be eased. There is great need for authorities to ensure the money is channelled into the banking system and end the punitive rent seeking behaviour on the market. Money should now be available as and when depositors need it. It must be withdrawable at automated teller machines, which have been turned into white elephants.