Any economy is driven by three industries which are
the primary, secondary and tertiary industries. The contribution to economic
growth from these industries depends on the level of development of the country.
For the case of Zimbabwe, primary industry such as mining and quarrying and agriculture
and forestry plays a crucial role in economic growth. While the contribution
from the manufacturing sector went down recently but it is very central for
improving peoples income. For example, if Zimbabwe is to come out of this long
period of economic decline, construction, manufacturing, electricity and water
sectors need to be supported significantly. Tertiary industry has been growing
but at a much slower pace that its true potential. To achieve economic growth
and development, the Zimbabwean fiscal and monetary authorities should devote
resources towards the development of these sectors in a more transparent and
accountable way.
Looking at the fiscal policy, the finance organ
should have allocated the resources in such a way that would encourage the
growth of these sectors. However, much of the spending is allocated to recurrent
expenditure and this is problematic and unsustainable. Recurrent expenditure is
the spending mainly allocated to the operations (travelling and accommodation,
telephone, electricity and water bills), wages and salaries, purchases of goods
and services, and current grants, subsidies without much contribution to
capital expenditure – payments for acquisition of fixed capital assets, stock,
land or intangible assets.
The 2019 proposed budget has addressed some of the
critical points the economy requires, but, to a greater extent, overlooked the
most imperative areas the economy needs addressed urgently. I will go through
what the budget positively addresses, before examining what is omitted. The
good points proposed in the 2019 budget are as the follows:
- The recognition of monetary policy and fiscal policy as complementary
- Coming up with structural and supply side policies such as, improving on accountability; respect of property rights and international treaties; public enterprises reforms, support to productive sectors of agriculture, mining, manufacturing and tourism
- Gradual exit from exchange controls to market based mechanisms for foreign currency allocation.
- Coming up with reasonable forecast for economic growth for 2019. This helps in anchoring expectations and build trust.
On the downside, Zimbabwe has been continuously
running budget deficits in past years and its domestic debt and external debt
has now been ballooning at an astonishing rate. The degree of the austerity
measures proposed are not enough. Running a budget deficit of 5% is reasonable
but what is this deficit (US$1.57 billion) financing? Does it help in creating
more income in the future or increasing the standard of living for the
Zimbabweans? Given the disproportionately large civil service workforce,
existing of ghost works, poor policy planning and implementation, only means,
in the future, the Zimbabweans would have to fund, not only, the deficit but
also the interest on borrowing to fund the deficit. Even though the budget
deficit is at US$1.57 billion, the total expenditure and net lending, including
Loan repayment is projected at US$10.3 billion.
Recurrent expenditure is huge; for example, the
amount of fund going to the soldiers and police is relatively high. The proportion
of the budget going to defence and war veterans and home affairs and cultural heritage
is about 13 % of the total budget, while transport and infrastructural development
combined is a mere 4.9%. There is need to fund more capital expenditure, like resuscitating
the ailing industry, support the poor performing agricultural sector (based on
ability on political network), revamping the cities, schools, roads, street
lighting, parks, clinic and hospitals, among other indispensable organs of the
economy.
The ministry of
Finance and Economic Development expects the economy to almost double by 2021
from the 2007 figure. Nominal gross domestic product (GDP) at market prices for
2017 stood at US$22, 041.3M and forecasted to increase to US$42, 757.7M. No
policies have been clearly articulated on how this is to be achieved. In
addition, there is need for an explanation on the significant decrease in
overall GDP and GDP components growth rates from 2018 to 2019. For example, the
growth rate of contribution of agriculture and forestry to GDP is at 12.4% in
2018 before falling to 3% in 2019 and then pick up in 2020 to 19%, the same is
with mining and quarrying that starts at 13% in 2018 before falling to 7.5% in
2019 and then pick up in 2020 to 9.3%. The majority of all other components
have the same trend. What are the economic fundamentals behind that? That needs
answers.
By Dr. Tutsirai Sakutukwa
Dr. Marshall Makate
http://econanalysispolicy.blogspot.com/
https://sites.google.com/site/tutsisakutukwa/
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