‘Budget to spur economic growth by ratcheting production’. . . the poor and vulnerable to benefit from trickle-down effect
FINANCE and Economic Development minister Mthuli Ncube on Thursday tabled an ambitious $421,6 billion 2021 National Budget in Parliament which he said will stimulate economic growth and protect the poor and the vulnerable in society. The Daily News on Sunday Consulting Editor Constantine Chimakure on Friday sat down with former Economic Development minister in the confidence-inducing government of national unity, Tapiwa Mashakada, to deliberate on the budget, its pros and cons. Mashakada is a renowned economist and an MDC legislator. Below are the excerpts.
Q: Professor Ncube presented the 2021 National Budget in Parliament on Thursday which he termed a “Citizens Budget”. In your view, what are the major highlights of the budget?
A: The $421 billion budget is transitional in the sense that it bridges the two important policy blueprints, namely the Transitional Stabilisation Programme (TSP) and the National Development Strategy 1. Some of the highlights are, but not limited to:
* Macro-fiscal framework whose key elements are a projected growth rate of 7,4 percent, a stable exchange rate, capital budget of 5,5 percent of gross domestic product, a recurrent expenditure of 12,7 percent, a targeted annual inflation rate of 135 percent, a budget deficit of -1,3 percent of gross domestic product and of course a trade surplus in 2021.
*The other highlights are a Health budget of $54 billion, which almost meets the Abuja Declaration of 15 percent of the budget.
*The strong growth forecast is on the back of growth in Agriculture by 11,3 percent, mining 11 percent, tourism 5,7 percent, manufacturing 6,5 percent, electricity and water 18,8 percent, construction 7,2 percent, transport and communication 7,1 percent, finance and insurance 7,2 percent, government services 6,2 percent and other services 4,3 percent.
*Other highlights are an allocation of $37 million to women and youth respectively, and the raising of tax free threshold from $5 000 to $10 000 per month.
Q: How feasible is the budget?
A: This budget is a result of adjusted bids from ministries which ran into trillions of dollars. Because of the limited resource envelope, the government had to reduce the bids to $421 billion. The feasibility of the budget depends on how realistic its assumptions are. There lies the problem because Zimbabwe heavily depends on agriculture, which is prone to climatic shocks. The funding of the budget will critically depend on donor support and domestic tax revenues. Ceteris paribus, the budget is feasible.
Q: Does the budget dove-tail with the five pillars of the recently launched National Development Strategy 1, the country’s new five-year economic blueprint?
A: The budget is predicated upon the NDS 1 whose five pillars are: macro-stability and growth; production value chains; social protection and human capital; strengthening institutions; and engagement and re-engagement.
Q: In terms of the poor and the down-trodden, how does the budget cover them? What are the social nets that were put in place and are they adequate?
A: This budget is not a pro-poor budget. Its main objective is to spur economic growth by ratcheting up production. The philosophy of the budget is that the poor and vulnerable sections of our community will benefit from the trickle-down effect. This is why social protection was only allocated $9,7 billion. The tax free threshold of $10 000 is not adequate under this hyperinflationary environment. Housing was given $14 billion, food and nutrition security $40 billion and Health of course. The situation in Zimbabwe is one characterised by growing inequalities. Poverty levels are rising and human development indices are declining, not improving. Austerity is threatening the upper middle class vision by 2030.
Q: You were the minister of Economic Development in the confidence-inducing inclusive government, what do you think Professor Ncube should have included in the budget to ensure economic and social development?
A: From an ideological point of view, Professor Ncube’s budget is market-driven based on neo-liberal economics. The budget narrowly focuses on the very small and dwindling formal sector. If I was in his shoes, the thrust of my budget would be to increase incomes in order to increase aggregate demand, not reducing civil servants wages and salaries. I would concentrate on fighting corruption and illicit flows then channel those resources towards salaries. In my case, I would have dealt with the problem of dualism and enclavism in the economy. This is a deep-seated structural problem. Growth must be horizontal, not vertical so as to push backwards the frontiers of poverty. If I was in his shoes, I would push for a new Mines and Minerals Act in order to ensure that mining revenue goes into the fiscus.
I would support student grants and loans and harness diaspora remittances. Most importantly, I would have advised the president to reduce ministries to say 15 and cut nugatory expenditure, including the rationalisation of loss making parastatals. Debt relief is another important area, which requires the accession to the heavily indebted poor country status. More resources would have been channelled towards free treatment of cancer and maternity.
In order to protect savings and pensions, I would have dollarised the economy and put it on a firm inclusive growth trajectory. Revival of the manufacturing Sector would have been my priority in order to create one million jobs in the next five years. The thrust of my 2021 budget would have been the creation of a US$100 billion dollar economy by 2025. I would also have gone further to liberalise the oil sector to allow importers with free funds to move fuel. In order to protect consumers, I would control the price of electricity. In terms of infrastructure, I would build a modern urban railway system and embark on rural roads rehabilitation. The list is endless.
Q: What is in it for business in the budget and what was left out?
A: The business community stands to benefit from a battery of measures which are contained in the 2021 National Budget, namely tax incentives, the real estate investment trust; payment of corporate taxes in foreign currency; duty free importation of buses for safari and tour operators; rebate on raw materials imported under the shoe manufacturing rebate; rebate on duty on raw materials for fertiliser manufacturing; the Dutch foreign exchange auction system; macroeconomic stabilisation and growth policies. However, what business needs is an environment of confidence building measures such as reduction of policy missteps; policy consistency, rule of law and respect for property rights. However, business always wants to maximise the return on their investments in a low inflation environment characterised by peace and stability.