One trillion dollar 2022 National Budget: A battle against exchange rate and price stability
By Tapiwa G Mashakada | Zim Morning Post |
There can be no doubt, that the 2022 budget is juxtaposed against so many odds which include but are not limited to price and Exchange rate stability, new covid variant shocks and possible climatic shocks. In the face of all these shocks, government is still expected to chart a course anchored by macro economic and fiscal balance while providing basic social services.
The 2022 national budget slightly falls short of the 1 trillion dollar mark raising fears of new inflationary pressures in the economy largely driven by parallel market rates and speculative behavior. The widening gap between the Dutch auction system rate and the parallel market rate will pose a serious threat on the impact of the budget.
While the premium between the parallel markets rates and the official rates is widening there maybe a case for the improvement of the bidding system so that it yields a competitive exchange rate that reflects market fundamentals. I opine that the Reserve Bank of Zimbabwe must not reject highest bids.
The other huge challenge undermining the budget is the dollarisation of the economy. The fact of the matter is that whereas the budget is in Zimbabwe dollars, on the ground 90% of goods and services are charged in United States dollars. Civil servants salaries are paid in Zimbabwe dollars but the fact that government has promised to pay bonuses in hard currency itself is an admission that the Zimbabwe dollar has been debauched. It then raises the question – who is benefitting from the Zimbabwe dollar? Is government printing money and getting seignorage revenues?
The 2022 national budget must see improvement in the disbursement of government funds to Ministries, departments and priority national projects. In the previous budgets disbursement was under 40% thereby giving a false impression of a surplas budget.
Despite these problematic issues it is encouraging to note that the economy is poised to grow by 5.5% in 2022, with exports jumping to over US$4 billion. This has strengthened the current account and will provide the necessary forex for importation of essential goods and services, and raw materials. I also note that the fiscal framework remains on balance although the is still no fiscal space to raise more revenues. This is the reason why out of total bids amounting to ZWL2.7 trillion dollars government only allocated ZWL927 billion dollars.
Development partners are also playing an important role as they are contributing a huge chunk to the budget and so is the diaspora which is now contributing US$1.5 billion per annum. Government must stay the course by continuing to finance capital expenditure and the public sector investment programme underpinned by infrastructural development.
I now turn to vote allocations and with measured caution, commend government for almost meeting the Abuja target in the health sector which was allocated 117 billion dollars or 14.9% of the budget. But I have been advised by other Economists that the vote for health is about 12% which falls short of the Abuja threshold. This begs the question whether the Minister made a genuine error or not? I personally think the Minister is smart enough and would not mislead both the President and the Nation. For now I take it that the Abuja declaration was met. The health sector must be adequately resourced in order to cope with the health care needs of a growing population ravaged by Covid.
Vote allocations for agriculture, education, energy, mining, tourism and industry will boost economic growth. But on Agriculture government must put more resources towards livestock health. The “January” disease has caused serious destocking throughout the country especially in rural areas where the situation is aptly described as ” kupisa matanga or burning cattle kraals”
The women and youth, SMEs and social protection received a reasonable allocation in the budget. However, despite chewing almost 60% of the budget, the purchasing parity of civil servants incomes is very low, which begs the question – why can’t government collect revenue in US dollars and pay civil servants salaries in hard currency anyway? One thing that is certain is that civil servants, being agents, will offload their earned hard currency bonus on the parallel market and this has the potential to increase parallel market rates. The payment of bonus in hard currency, welcome as it is, is however a sign of lack of confidence in the mono- currency by government itself.
The Minister of Finance calls the 2022 budget the People’s Budget but regrettably there is little or no pro-poor policies in the budget. We expect to see the plight of pensioners comprehensively addressed. The tax-free threshold must be raised to ZWL 50 000 dollars if it is going to cushion the working class. Despite harping on supporting economic value chains, there’s no clear jobs creation strategy in the budget. It is also not clear how government is going to ensure that minerals are value added and beneficiated locally, during our lifetime!. Yet these are the same issues we keep on raising year after year in pre-budget consultative meetings.
I urge government to increase the budget allocation to the local government sector which is in shambles. The urban road network needs complete overhaul. Motorists are driving on bumpy and pot holed roads which require urgent capital outlays. Economic growth is hollow if it does not lead to the improvement in the lives of people and clearly the poor state of urban roads, reduces the happiness index of citizens.
Urban water and sanitation, governmet must urgently intervene and make sure that urban settlements have clean running water and efficient liquid waste management systems.
On key infrastrucural projects, I appeal to government to finish the Harare airport road – the section linking Enterprise road and the Flyover bridge on Mukuvisi river was abandoned many years ago. The other urgent project requiring urgent attention is the decongestion of the Mbudzi traffic circle by the construction of flyover and associated rumps.
Turning to Matabeleland, the Beitbridge border post must be modernised and turned into a one stop border post in order to improve the movement of traffic, people, goods and services. Government must complete the Zambezi water project in 2022 in order to provide a lasting solution to the water challenges faced by that region. The Kwekwe-Nkayi-Lupane road must be constructed and tarred in order to shorten the distance to the tourist resort of Victoria falls.
More schools and tertiary colleges must be constructed in Mashonaland East and Central provinces. I have raised some of these project issues so that government remains alive to the development gaps that exist.
In conclusion, this cursory look at the 2022 national budget is meant to provoke further debate on the manner in which government has proposed its budget measures. It is hoped that the global economy will not be adversely impacted by the new Covid variant which has got a potential to reverse the economic stimulus measures which have been provided by the IMF through the SDRs. And talking about SDRs, civil society and none- state actors must now engage authorities on the proposed allocation of the $1 billion SDRs that Zimbabwe recently received from the IMF.
Last but not least, the usd50 tax on new cellular handsets flies in the face of digitalization. We must promote mobile banking and handshake with technology. Zimbabweans had long transited from being digital migrants to becoming digital natives. This tax must be reversed while other revenue raising measures are explored.