HARARE – (FinX) – Finance and Economic Development Minister Mthuli Ncube is expected to present his second budget statement tomorrow which is expected to stimulate the economy for growth although balanced with fiscal prudence as there are risks, which will weigh down growth targets.
Ncube, has already said that his second budget, will not have major policy announcements. It will instead try to gear the economy towards productivity, growth and job creation after what he terms “a record year of austerity,” which saw him introduce an unpopular 2% tax and saw him balance Government books as well as narrow the current account deficit. The budget also comes at a time, the economy is expected to significantly contract due to the effects of drought, power shortages and high inflation.
Ncube recently said that the sluggishness of the economy has led to expectations of stimulus measures to boost growth through new policy initiatives and continued reforms to create jobs. Overall though, reflating meaningfully in the near term is difficult without fiscal slippage or aggressive monetary stimulus, while sadly for the Minister the next set of required reforms require political capital, and non-political consensus, which are unlikely to be easy to obtain.
Executing the 2020 Budget: given the shrinking size of the budget in real terms, current fiscal constraints and the possibility of lower than expected growth faces significant risks. The biggest constraining factor is the immediate rush to embark on a stimulatory budget in the absence of stability on the exchange rate and the inflation while invigorating investment needs reforms, which may not show an impact in the short term. Government will also have to mind the risks of key growth decelerators hampering productivity and growth, particularly high input costs due to; the electricity shortage, rising costs of fuel, and labour cost escalation.
Risks to the macro-fiscal framework in 2020
· Wage pressures with no supporting increase in tax revenue
· Spend which is outside the budget framework
· Continued subsidies
· Agriculture funding
It’s also widely expected that Ncube will give relief to the common man by cutting PAYE and to provide tax rebates and incentives to specific industries. He was particularly buoyant about the health sector when he had a meeting with editors last week. He believes that Zimbabwe should be a hub for pharmaceuticals in the region. It’s expected that he will announce a framework on investing within that particular sub-sector with emphasis on CAPS Holdings while at the same time upping spending on agriculture, energy and social sectors. There should also be a push for infrastructure spending. The capital infusion is expected to come through the creation of a National Venture Fund.
Ncube has also hinted that he will look at creating jobs. Jobs are the foundation of any economy. High levels of unemployment relate to a structural weakness in a country’s economy and have led to rising poverty levels, inequality, social problems. Since jobs are created by the private sector within enabling environments created by governments, any push towards boosting employment levels should have the provision of a foundation or fundamentals such as a macro-economic stability as its main pillar. Ncube is widely expected to announce an employment tax incentive modelled along South Africa’s Youth Employment Tax Incentive, which was launched in 2014.