Supplementary Budget cleverly thought-out

31 Jul, 2022 - 00:07 0 Views
Supplementary Budget cleverly thought-out

The Sunday Mail

With the obvious exception of the inflation figures, the Mid-Term Budgetary Review by Minister of Finance and Economic Development Mthuli Ncube was pretty solid good news, with all the fundamentals still as sound as we have now come to expect under the Second Republic.

And the Supplementary Budget was essentially just to take into account the higher than expected inflation in the first six months rather than coping with some sudden downturn or national emergency.

The nominal values of revenue and expenditure needed to be adjusted, along with he nominal values for income tax brackets, and for that Parliamentary permission is required.

The first sound fundamental is that Prof Ncube, backed by President Mnangagwa, still refuses to print money.

He likes his Budget to balance, with a tiny bit of lending allowed for pure capital expenditure and even then only for that part of the capital budget where there is an instant stream of revenue to pay off the loan.

At present, Zimbabwe is a lot tighter than just about every other country on this high level of fiscal discipline and for very good reasons.

The inherited debts from more spendthrift past dispensations are still there and our present Finance Minister is totally unwilling to add to the totals.

The money printing in the past almost destroyed our economy and while we are not getting it right and finally have a growing economy, we need to keep up that progress.

Admittedly growth this year is a bit lower than expected, 4,6 percent being the estimate rather than the 5,5 in the original Budget.

Some of that is because the rainy season was a bit off, enough water but the way the rain fell in two very wet periods but starting late, followed by a long dry spell followed by a prolonged wet end of the season was not farmer friendly.

Then we have the global economy. Both the International Monetary Fund (IMF) and the World Bank (WB) have cut back their estimates for global growth this year for a number of reasons including rising oil prices and conflict in Ukraine.

But there are two important points to note. First Zimbabwe’s growth remains well above average both in Africa and in the world.

Secondly this growth is running well above the population growth of around 1,5 percent, just over three times higher in fact. This is important.

Assuming reasonable distribution policies, and things like the massive programmes for smallholder agriculture and the assorted business programmes in urban areas are doing that, it means we are on average all getting a bit better off.

The third critical fundamental is that our balance of payments is positive, that is more foreign currency flows into Zimbabwe than flows out.

Admittedly we import a bit more than we export, but then other inflows, largely the diaspora remittances although there is some aid money as well, are far larger than the non-trade outflows, so when all is added up we have a current account surplus.

There is obviously still some strain since our inflows tend to go into three main pools: surrendered export earnings, retained export earnings and the remittances, but fixing this simply means policies that split the division a bit better rather than having too little to split.

This is work in progress with November seeing a better division after the notice was given recently.

With these sound fundamentals inflation should not have been happening the way it has happened in the first six months, and that lends weight to the arguments that a good chunk of the inflationary pressure is coming from those who manipulate the systems and who break a lot of rules.

But these rules are being tightened and investigators are getting a lot better. Already we are seeing a lot more stability as a result.

The adjustment of the revenue and expenditure figures in local currency because of that inflation was expected and there was nothing very dramatic.

The minister obviously needed to adjust the lower income tax brackets, all those for rates below the maximum of 40 percent. He did this simply, just doubled the band widths so the zero percent bracket is now the first $50 000 you earn each month.

As pay rises during the year, in both private and public sectors, to cope with inflation, rather than just a one shot rise, he made the tax free part of the bonus five times larger, since this comes at the end of the year, after the incremental rises.

The one major change in his new expenditure estimates is the higher percentage devoted to civil service compensation than originally planned, with civil service in this context including the uniformed                                      services.

In the extra, the minister is seeking he plans on spending 53 percent on compensation significantly higher than the original estimate of around 37 percent. The new consolidated Budget now devotes 44 percent to compensation.

This added stress on pay, while retaining the Government’s development drive, can be seen in the top two ministries in the revised budget. Primary and Secondary Education, where most of the money is pay since teachers are easily the largest group of civil servants, retains its number one slot.

But Lands, Agriculture, Fisheries, Water and Rural Development is just behind in number two position, with the biggest chunk of that ministry’s cash devoted to the input schemes and the payment for the resulting harvests, a development expenditure, although the growing Agritex wage bill is included.

While there are critics who wanted taxes slashed or abolished and expenditure drastically increased, our national funds are run by people who can add and subtract, and so can balance what comes into Treasury and what goes out. It might not be exciting to have the correct sums, but competence is like that.

This competence is working already and fairly obviously Minister Ncube intends to keep it working while he and the Reserve Bank of Zimbabwe continue their war against manipulators and so tame inflation, and that is now a winnable war since the rest of the fundamentals are in place.

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