Zimbabwe revised budget an encouraging start

The revised budget announced on 19 March 2009 by the Minister of Finance Tendai Biti marks an encouraging start in formulating a sustainable economic recovery path. The budget is particularly realistic as it seeks to restrict expenditure to revenue streams that are both realistic and achievable. Implementing balanced budget similar to what the Minister is proposing ,would be a difficult task but not impossible. If it can be implemented it will break new horizon in showing that at last a fiscally disciplined Government is in place.

Whilst its understandable that the budget does not meet all expectations this is normal given the over expectations surrounding the Minister’s new policies. It has taken close to 30 years for Zimbabwe’s Economy to decline this much and its simply expecting too much for one budget statement to correct all those policy mis-alignments.

The reduction of the budget from US$ 1.9 billion to US$ 1 billion clearly sends a message that the Government has to try and live within it means. This has a critical effect of limiting the need to use dis-credited measures such as the now in famous Quasi Fiscal Activities which were used to finance anything and everything without proper parliamentary approvals .Parliamentary approvals are critical in building confidence as they provide check and balance mechanism which is required wherever public funds are being distributed .

The down ward revision of the budget shows points that the new Government or the Minister is aware Zimbabwe can not fully rely of begging and borrowing without taking any serious steps to try and streamline expenditure in line with revenue streams available.

The revised budget clearly notes areas which urgently require funding . In particular the Minister pays attention to “declining productive capacity and hence massive de-industrialization, food shortages, loss in value of the local currency, corruption, deteriorating public service delivery particularly education, health, sanitation as well as public utilities and infrastructure”.

Whilst there is nothing new about these observations it is encouraging that the revised budget clearly highlights these problems and given the high expectations on the Minister many would be expecting him to follow through on this and ensure corrective measures are taken. A step that will unlock goodwill and additional resources from the International community.

The Minister rightly notes the need to boost production and exports which will create jobs, increase foreign currency reserves whilst increasing the tax base. Zimbabwe’s tax base which drives the Government revenue has shrunk to such levels that the Government is overtaxing the few tax payers still around. An economy that has largely been informalised like Zimbabwe can not sustain a decent Government revenue base. This is why its critical to create a conducive business environment that encourages investment and formal job creation.

Historically tax payments on income tax related to workers has been the major contributor of Government revenue. However due to the massive company closures and scale downs this had to be replaced by custom s duty and other related revenue as main source of Government funding. This is not sustainable nor is it desirable. Zimbabwe does not generate that much in foreign currency to keep importing. Therefore if there are no imports there is no import duty or other related revenue. This makes it imperative to expand and diversify the government revenue base in ways suggested in the revised budget .

The return to rule of law can assist to restore productivity on farms and encourage further investment into the Agricultural sector where Zimbabwe once had serious comparative advantages over the rest of the Region.

According to the revised budget “All economic enterprises, from the informal sector, street vendor, to the largest national corporates listed on the stock exchange, must henceforth trade and meet their tax obligations in foreign currency.” This measure confirms the earlier budget in formally accepting that the Zimbabwe dollar is now history.

This measure simply acknowledges reality even though it creates further hardships for the general public given the limited amount of foreign currency in circulation. The Zimbabwean financial system is not yet in a position to fully start lending in foreign currency which would be required to assist industry to get back on its feet.

This aspect serves to remind the need for restoring international relations. This will allow Zimbabwe institutions to tap into international capital and resources. Its encouraging to note that the Minister is aware of the need to re-engage the international community. One hopes his colleagues in the Inclusive Government will fully be supportive and stop acting in ways that antagonize well wishers in the international community .

Gilbert Muponda is can be contacted at gilbert@gmricapital.com