Ncube is expected to present the 2024 national budget this month amid a host of challenges, including poor rainfall, softening commodity prices, power cuts, high inflation and subdued production. 

FINANCE and Investment Promotion minister Mthuli Ncube should lower indirect taxes in his proposed national budget for 2024 to lessen the impact of the anticipated recession, economic analysts have said. 

Ncube is expected to present the 2024 national budget this month amid a host of challenges, including poor rainfall, softening commodity prices, power cuts, high inflation and subdued production. 

As such, the economy is projected to grow by 3,5% in 2024. 

In his pre-budget presentation last week, Ncube said the total bids for the 2024 national budget were ZW$110 trillion, with the government only proposing ZW$47,8 trillion.

The difference between the two figures gives ZW$62,2 trillion, meaning that the government’s national budget is underfunded. 

In US dollar terms, the country needs an additional US$2,51 billion to fund next year’s obligations for the government, its departments, and agencies.

Expenditures are projected at ZW$47,8 trillion, broken down as ZW$24,7 trillion for compensation of employees and capital expenditure at ZW$10,3 trillion. 

Zimbabwe’s economy has been in a poor position for years.

Exchange rate disparities, power cuts, poor delivery in amenities, decreased lending, declining investments, policy flip flopping, corruption, inflation, and increased political volatility, are major reasons why the economy remains volatile.

Further, the country’s high public debt level has excluded it from accessing fresh capital from most international financial institutions. All these challenges have left the economy in a continued consumptive state, rather than productive, as evidenced by trading skewing more towards imports than exports annually.

Now, looking at the Treasury statistics, the economy entered a recession in 2019 when it experienced a growth rate of -6,3% and -7,8% the following year.

After the contraction in 2020, the economy had a post Covid-19 bump to 8,5% in 2021 before slowing to 6,5% in 2022 with the Treasury expecting a further slowdown to 5,3% this year.

The slowing growth rate is because the challenges that contributed to the recession of 2019 and 2020, excluding the effects of Covid-19 in the latter year, continued to grow. This led to both the Treasury and the Reserve Bank of Zimbabwe (RBZ) adopting more hawkish policies since May, resulting in local currency liquidity quickly disappearing from the market.

Economist Stevenson Dhlamini said given the remaining two years of the national development strategy 1, the budget should emphasise infrastructure development and welfare of citizens through revised remuneration for civil servants. 

“I also look forward to the relaxation of indirect taxes to ease the burden of expected recession,” he said. 

“Also given the phenomenon of El Niño, we expect the budget to reflect social safety nets to cushion the citizens from the adverse effects of slowed economic growth.”

Another economist Godfrey Kanyenze said while he understood that the reduced budget was owing to Ncube’s need to try and control the money supply, this still left the economy in a volatile state.

“I think the emphasis now is to rein in inflation because it has wreaked havoc on the economy, it has wreaked havoc on peoples’ incomes, it has eroded the incomes. It has made it very difficult for people to accept the Zimdollar (Zimbabwe dollar) as a mono currency and now we are in this multicurrency regime,” he said.

“So, essentially, you can imagine that ministries are grappling with the real issues on the ground, real issues relating to the need to really serve the people and that is what the ministries are there for.”

Economist Tony Hawkins queried Ncube’s figures considering that in the pre-budget strategy document in August, the proposed budget was ZW$33,07 trillion.

“For such high increases, it must mean very high inflation. There is no other way you could go from the budget from a year ago (ZW$4,5 trillion) and go to ZW$47,8 trillion in one year then give figures that inflation is 30%, on average, that is nonsense.”

He said until there was some honesty of what inflation really was it would be difficult to determine whether the increase in expenditure is real or inflationary.

“In other words, you would not be producing any more output or infrastructure. Rather, you would just be producing the same amount but at a much higher costs,” Hawkins said.

He said even plans to collect ZW$44,1 trillion were in doubt as the economy is expected to slow down next year with the advent of the El Niño drought, weakening mineral prices, and continued macroeconomic stability.

With the current macroeconomic challenges, the government’s main revenue sources, that is, corporate and income tax are increasingly subdued.

Regarding corporate tax, economic challenges such as power cuts, exchange rate disparities, water shortages, depressed access to capital, foreign currency generation challenges, and a lack of investment have reduced business revenue.

This has left companies with reduced producing capacity thereby reducing its ability to increase its tax payouts.

Meanwhile, concerning income tax, these challenges have meant that businesses are looking at cutting costs, which typically has led to layoffs or implementing hiring freezes.

The Confederation of Zimbabwe Industries (CZI) revealed in its business sector outlook for the next three months, that nearly 15,79% of businesses expected a decrease in profitability, while 10,53% project job cuts.

Ncube admitted that the budget would be tight for the 2024 fiscal year.

The lack of funding for the Treasury comes from its inability to attract new capital due to debt, corruption, and its failure to implement policies that can support a productive sector as evidenced by the import/export disparity.

Resultantly, some sectors will not receive the adequate amount needed to grow. 

Parliament Portfolio Committee on Mines and Mining Development chairperson Remigious Matangira said there was “need to move beyond catch-phrases and taglines and show seriousness in the way financial resources are allocated”.

“Beneficiation and value addition should be seen in action not as mere rhetoric. This calls for serious funding towards mining development.”

The total bid for the ministry is ZW$696 billion. The Treasury capped the estimated expenditure at ZW$94,7 billion. 

This amount fell short with ZW$601 billion to meet the ministry’s bid policy.  

The Treasury provided the Ministry of Land, Agriculture, Water, Fisheries, and Rural Development an expenditure ceiling of ZW$2,8 trillion compared to the ministry’s bid of ZW$54,9 trillion.

“The ministry is being underfunded, given the inflationary environment  in which we are operating in, the budget will not be adequate to fund the ministry for the whole 2024 financial year,” the committee representing the ministry said in its pre-budget presentation.

“Agriculture is the mainstay of Zimbabwe’s (economy). As such, to fully realise the potential of the ministry, there is need for adequate financial resources to allow the ministry to deliver on its mandate.”

With increased power outages and a lack of access to foreign currency credit, capacity for industry has been declining.  With all these budget constraints, it remains to be seen how bad the economy will be affected.

As at November 8 2023 exchange rate was US$1:ZW$5 738,72.

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