As part of the annual budget cycle, the Treasury chief, Prof. Mthuli Ncube, presented the 2023 budget statement before the legislature. For starters, this is Zimbabwe’s annual financial statement giving estimates of the forthcoming year’s revenues, and how they will be raised and utilized. It helps ensure that a nation’s strategic objectives and priorities including inter alia economic growth & stability, resource reallocation, and reduction of inequalities are met. In this column, I try to dissect the budget statement to gauge if it is economically sensible.
2023 Budget -Theme
The 2023 budget is running under the theme, “Accelerating Economic Transformation” picking up from the current (2022) budget’s focus on “Reinforcing Sustainable Economic Recovery and Resilience.” But the question remains: Is the 2022 budget living up to its cause of sustainably reinforcing economic recovery and resilience? Between Jan-Nov 2022, the Zimbabwe dollar (ZWL) had lost at least 75% of its value against the greenback and largely contributed to unbearable inflation levels with official statistics showing monthly prices mounting by an average of 12% during this period. Consequently, the income gaps between USD earners and ZWL earners widened significantly thus plunging the majority into poverty. Latest World Bank statistics show that about 40% of the population is wallowing in abject poverty. Ironically, the budget has earmarked few resources to provide adequate relief to vulnerable and marginalized societal groups.
As for businesses, 2022 witnessed poor domestic electricity production reaching levels last seen in 2019 where load shedding stretched for over 12 hours per day. Electricity is a crucial industrial production enabler; its scarcity is an albatross to business activity. The prolonged load-shedding schedules occurred at a time prices of substitutes like fuel have surged substantially, reaching their all-time highs. Also, frequent currency & price volatilities have hugely affected business predictability. Generally, predictability is key in business as it enables great market fit and quality customer service while eliminating waste and inefficiencies to build a strong foundation of sustainable enterprise. More so, an astronomical spike in the Reserve Bank of Zimbabwe’s (RBZ) benchmark policy has fuelled the cost of money thereby compounding an already high cost of doing business environment.
In light of the foregoing, one can pose a simple question: Is there an economic transformation registered in 2022 that needs to be accelerated in 2023? In my view, the 2023 budget is largely focused on elections, not the economy. A projected 136.8% jump in budget expenditure ceiling to ZWL4.5 trillion in 2023 from 2022’s ZWL1.9 trillion can attest to this assertion. If the national output (GDP) growth is expected to decelerate further in 2023, what then informs the Treasury’s projected jaw-dropping spike in revenue collections next year? From this, it is evident that fiscal authorities are anticipating a carryover of the existing economic problems.
2023 Budget -Economic Outlook
Zimbabwe’s Treasury had downgraded its 2022 growth projection to 4% from the initial 4.6% stated in the 2022 Mid-term Fiscal Review. The fiscal authorities expect GDP growth to moderate further in 2023, registering a 3.8% growth. This is, however, lower than the 5% target stated in the National Development Strategy 1 (NDS1) (2021-2025). According to Treasury, this growth will be hinged on various assumptions which include among others favorable rainfall patterns & global mineral prices, stable ZWL & power supply, tight monetary policy, and continued use of multi-currency. As such, authorities expect inflation to average 1-3% in 2023 thanks to a “sustainable” fiscal deficit projected at 1.5% of GDP.
However, accounting for the likely risks to the economic outlook, I opine that the government will likely miss all of the foregoing targets. There is a high possibility of a continuation of ZWL deterioration and skyrocketing inflation in 2023. This possibility will be largely powered by excessive fiscal spending which is being fuelled by the upcoming 2023 general elections. Also, I expect leakages of public funds from corruption and illicit transactions to escalate as politicians will seek re-election at all costs. Although the Hwange Thermal expansion project (Unit 7&8) is expected to add 600MW to the national grid, I expect erratic electricity supply to continue persisting in the first half of the year. For me, the main threat to the power supply is dwindling Kariba Dam levels as well as the frequent breakdowns being experienced at the existing aging thermal stations dotted across the nation. More so, the economic uncertainties posed by both the COVID-19 pandemic and the Russia-Ukraine war will probably exert massive pressure on global inflation which will in turn greatly affect perennial net importers like Zimbabwe.
2023 Budget -Taxation
For 2023, total revenue collections are projected at ZWL3.9 trillion comprising tax revenue of ZWL3.5 trillion and non-tax revenue of ZWL369.7 billion. A budget gap of ZWL575.5 billion will be financed through the issuance of a US$100 million domestic bond, a US$400 million loan facility from Afreximbank, ZWL10 billion changes in bank balances, and ZWL82.8 billion treasury bills (TBs).
As alluded to earlier, the budget was presented at a time both the cost of living and the cost of doing business has ballooned. Despite this, various tax measures that increase the burden on economic agents are being proposed for 2023 in addition to already punitive taxes under implementation in the 2022 fiscal year. For instance, the 2022 budget is decorated with new regressive taxes like the US$50 cell phone tax and 2% US$ cash withdrawal levy while maintaining a 2% tax on all ZWL electronic transactions, a tax that is greatly suppressing poor household budgets as it fails to recognize income disparities. As if this were not enough, Treasury also increased tax on domestic US dollar transfers in 2022 to 4% from US$0.05 per transaction. Moreover, fiscal authorities introduced a 2% cash withdrawal levy on USD transactions.
As expected, the 2023 proposed budget continues with an anti-poor stance. Amid high market expectations for a sustained price increase in 2023, the 2% tax will be maintained and the value-added tax (VAT) will be restored to its pre-COVID-19 level of 15% up from the current 14.5%. This increase occurs at a time households are already facing an inflation tax. Furthermore, the proposed 2023 budget will increase excise duty on energy drinks by 100%. In my view, it is the poor who consume the bulk of these energy drinks in their quest to recoup energy being drained daily by indecent jobs in the informal sector. Again, Treasury will not extend the suspension of import duty on basics thus risking exposing the poor majority to high market prices charged by profiteering local businesses. Nevertheless, the proposal to lower the tax rate applied on domestic US$ transfers to 2% in 2023 from the current 4% is welcome and expected to partly cushion those on the lower-earning spectrum. It further reduces transaction costs, a key step needed to initiate the process of rebuilding market confidence. Barring corruption, the proposal to also receive 50% of royalties on gold, diamonds, PGMs, and lithium in kind will help build ‘secure’ reserves which are key in supporting the ZWL and tackling unforeseen contingencies like natural disasters.
2023 Budget -Borrowing
As I had indicated in the debt figures in the previous section, the astronomical increase in debt stock in ZWL terms reflects massive exchange rate deterioration while debt growth in US$ terms accounts for new disbursements for ongoing projects, RBZ borrowing, and continuous accumulation of penalties. The burgeoning debt arrears and penalties show that Zimbabwe is trapped in debt distress -struggling to settle her obligations when they fall due. Despite this, the appetite for borrowing by Treasury continues to persist. An unsustainable debt level is now crowding out social service delivery. For example, because of high indebtedness, Treasury will spend more taxpayers’ money on debt servicing in 2023 than the resources it has allocated to the Ministry of Labour and Social Welfare (a paltry ZWL50.4 billion) for the provision of social safety nets. The crowding out of social services happens at a time the nation is grappling with chronic inflation, crumbling infrastructure, rising inequality, and deepening poverty. Also, increased domestic public borrowing is expected to crowd out private sector investment as it fuels the cost of money.
On a positive note, the continued payment of token payments (acknowledgment of existing debts & arrears), proposals for an all-inclusive debt forum, publishing of annual debt statements, as well as the publicization of domestic borrowing plans are highly commendable as they will help to improve transparency and accountability in the management of public debt. Be that as it may, there is still a need for undertaking an independent debt audit to inform citizens about the scale and nature of their country’s debts, which are often not transparently publicized. Also, authorities should adhere to the dictates of the Constitution and existing PFM legislation.
Conclusion:
The 2023 national budget is largely focused on the upcoming general election. As such, one cannot expect it to propel progressive economic transformation as it is largely showing an unsustainable fiscal spending path. Next week, in this column, I will examine the quality of the proposed 2023 expenditure allocations, ceteris paribus.
Zvikomborero Sibanda is an economic analyst and an astute researcher. He writes in his personal capacity. He can be contacted via email:
br**********@gm***.com
Twitter: @bravon96
