Zimbabwe’s economy is largely positive, but structural issues need to be addressed
The 2021 mid-term budget and economy review presented by Finance and Economic Development Minister Mthuli Ncube to parliament last week indicates some level of political continuity and reflects better budget management, actors said. of the market.
The highlight of the mid-term budget and the 2021 economic review is the lack of additional budget and Minister Mthuli’s promise to stay the course by implementing existing policies.
With Zimra raising more revenue than expected and spending remaining below collections of up to $ 570 million, Minister Mthuli has not sought additional resources for the 2021 national budget.
Speaking at the Post Mid-Term Budget and Economic Performance Review organized by Business Weekly in partnership with Zimpapers Television Network and the Zimbabwe Confederation of Industries (CZI) economist, James Wadi said in now a “status quo as regards political orientation” the Fiscal The examination of the budget indicates “a certain level of political continuity”.
âNo additional budget for the 2nd year in a row – reflecting better budget management,â Wadi said.
Crystal Candy Pvt Limited Managing Director Jimmy Psillos also acknowledged the positive trajectory which he described as “incredibly good news”.
“This is the second year in a row with no extra budget and it’s during a global pandemic, so how many other countries in the world have managed to do it?”
The founder and CEO of the Zimbabwe SME Association, Farai Mutambanengwe, intervened and said there was a rebound in the economy, which he attributed to reduced growth in the money supply and ” improved stability on the political front “.
While things are going well and doing well, Mutambanengwe and Wadi have both pointed out some structural issues that need attention lest they derail the progress made so far.
Mutambanengwe said that whether or not the economy will experience sustained growth, it depends on how issues such as inefficient currency market, where the premium between the official exchange rate and the parallel market rate is higher. at 50% and growing, are discussed.
He also referred to the high taxes including the 2% tax, transaction costs, high interest and bank charges, high monthly inflation and political shocks such as the introduction of Statutory Instrument 127, between other problems, as obstacles to sustainable growth.
Mutambanengwe’s recommendations were; “Solve the inefficiencies of forex auctions and move to the market-linked exchange rate as soon as possible, IMTT should become tax prepayment and tax deductible.” PAYE tax brackets must be adjusted upwards, remove the mandatory 20% conversion on nostro accounts, regulate transaction fees, interest rates and bank charges, as well as remove theses and opportunities for arbitrage in the market.
Wadi highlighted the structural shift towards the economy as reflected in GDP and the contribution of exports by sector before and after dollarization.
The manufacturing sector, for example, has gone through the deindustrialization and informalization of businesses while the lack of competitiveness has eroded the capacity to export.
âAs we debate the budget strategy (2022), these are the things we may need to restore the ecosystem links between sectors so that we can use some of the raw materials we produce locally and add value. that we need, âhe recommended.
Wadi also highlighted declining employment levels as a cause for concern.
He pointed to PAYE’s shift from dominating Zimra’s revenue collections to corporate tax dominance over the past two years, a sign that formal employment is declining.
Historically, the individual tax head also known as PAYE has always been the largest contributor to income before VAT and corporate tax.
Wadi said it is possible that the economy has seen an increase in informalization or a considerable decrease in the number of jobs.
“From a political point of view these are some of the things we want to be able to steer the policy to say, let’s look at those niceties and say what caused this structural move, does that trigger political intervention so we can intervene and take corrective measures â.
Wadi said in addition to worrying employment levels, there is a need for the government to look at tax brackets.
“The tax brackets have not budged and that may mean that the majority of beneficiaries could be pushed into higher tax brackets and then the impact would kind of be a ripple effect on part of the income. available.”
Regarding inflation, Wadi said, going forward, year-over-year inflation is going to be sticky.
“Starting in August, while month-over-month inflation could be single-digit, year-over-year inflation will get sticky to the downside.”
The economy has already benefited from the âdividendâ of favorable base effects.
âThe high prices in US dollars are a cause for concern as it makes the country a high cost producer. “
âWe need the policy to remain strict in the management of liquidity.
“What that may mean is to revisit our goal of reserve money and manage our liquidity without choking the market.”
Wadi said there was a need to improve the auction system and remove arbitrage opportunities that distort the exchange rate. – Business weekly