Zimbabwe: Drought, revenue drop to weigh On Zim budget

Zimbabwe: Drought, revenue drop to weigh On Zim budget


ZIMBABWE – Zimbabwe’s Finance Minister Patrick Chinamasa is to present the country’s 2016 national budget on Thursday.

Given the continued deterioration of the country’s economic situation, Chinamasa’s task is nothing but herculean and he is expected to perform a Houdini act.

One key focus area is how Chinamasa will deal with the country’s falling revenues. The Zimbabwe Revenue Authority (Zimra) missed its revenue target for the period from June to October. During that period Zimra collected US$878.22m against a target of $964m – a 7% drop from $884m collected during the same period last year.

Despite the falling revenues, analysts expect Chinamasa to reduce taxes to stimulate aggregate demand.

“Undoubtedly the upcoming national budget not only needs (to) arrest further economic decline, but also stimulate economic growth. I think government should incorporate the reduction of VAT, PAYE and other taxes, even marginally,” said analyst Jerome Negonde, adding that the move will improve aggregate demand as it will put extra income into consumers’ hands.

Stakeholders will also be waiting to see what Chinamasa will do to arrest the country’s negative inflation, as deflationary pressures have seen businesses report declining revenues.

At a recent results briefing, the country’s biggest retailer OK Zimbabwe told analysts that the decline in revenue was on the back of continued deflation with internal deflation (average basket) at -4.5% against the official deflation figure, which stood at -3.1% as at September 30.

Zimbabwe’s annual inflation for October 2015 stood at -3.29% from -3.11% in September. Year-on-year food and non-alcoholic beverages inflation prone to transitory shocks stood at -4.00%.

Another key areas of focus is how the minister will tackle the civil service wage bill, which has been taking a share of over 75% from previous budgets.

Chinamasa has already told the nation that he, along with the minister responsible for the public service, has been tasked by cabinet to identify all areas with scope for savings, removal of duplications and overlaps as well as streamlining roles and functions of civil servants, among others.

This week Public Service, Labour and Social Welfare Minister Prisca Mupfumira hinted what to expect after announcing a raft of measures she said will “change the face of the civil service”.

Guidelines on dealing with the falling rand

It would also be beneficial if Chinamasa gives some guidelines on how to deal with the falling rand. Zimbabweans are already rejecting the use of the unit as a medium of exchange. Reserve Bank of Zimbabwe governor Dr John Mangudya added his voice by backing businesses rejecting rand coins, saying this is acceptable in managing risks associated with weakening currencies.

It is therefore imperative for Chinamasa to give government’s position on the multi-currency system in general and the rand in particular.

The agricultural sector should also be a key area of focus for the Zimbabwean government. The budget is expected to come up with measures to stop the continued importing of food as well as arrest the ongoing decline of agricultural exports.

The budget comes at a time when Zimbabwe and other regional countries are facing a drought season. Government is thus expected to implement measures to encourage and support irrigational activities. It will also be interesting to see how Chinamasa will fund agriculture. His counterpart in the agriculture ministry has already hinted that government will give cotton farmers all inputs needed to grow their crops. Agriculture, Mechanisation and Irrigation Development Minister Joseph Made said government is going to fully fund cotton farming for the country’s farmers.

Meanwhile, Zimbabwe’s economy is projected to grow 2.7% next year, largely driven by agriculture and mining, according to the Ministry of Finance’s 2016 budget strategy paper. This represents almost double the projected growth from 1.5% this year, which was revised downwards from the initial 3.2% following the poor agricultural season.

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