12 points on the mid-term Budget Review statement

17 Aug, 2015 - 00:08 0 Views

The Herald

Kipson Gundani Buy Zimbabwe
The Minister of Finance, Hon Patrick Chinamasa presented the mid-term budget review on Thursday July 29 2015 amid high expectations form the diverse stakeholders as the economic woes of the country continue to mount. The recent loosening of the labour laws and the subsequent retrenchments has stimulated unsettlement and agitation amongst the people.

BUY ZIMBABWE commends the minister for introducing austerity measures aiming at cushioning the industry from further haemorrhaging. Of particular interest,

i. The Government banned importation of second hand clothing and shoes.

Though there are fears that the blanket ban of second hand clothes will have an adverse impact on the poor and unemployed who can’t afford to purchase new clothes in the formal sector, the policy is expected to result in an improved capacity utilisation in the clothing industry.

Buy Zimbabwe also notes that the ban without supporting measures to cab potential smuggling will be rendered futile.

More so, we urge the minister to also consider a quota system for new clothing imports particularly from China, Turkey, Belarus and the Middle East which have also posed a significant market threat to local clothing manufactures.

ii. Basic goods removed from travellers rebate effective 1 August. This was an overdue policy measure given the tremendous capacity improvement by the local manufacturers.

iii. Surtax on second hand light motor vehicles — 5 years and older rose to 35pct from 25pct from September 1. The increase in surtax on second hand vehicles from 25 percent to 35 percent is highly unlikely to discourage the importation of the second hand cars as they are still comparably cheaper to locally assembled cars.

The policy intent is not therefore to cushion local assemblers as it falls far short of causing a car import shock.

iv. The proposed electricity tariff reduction from 12,76 cents/kWh to match the regional levels should lower the cost of production for local manufacturers of both food and non food items.

In addition, the mining sector, whose major cost of production is energy, stands to also benefit from this tariff reduction.

v. The reduction of royalties for small-scale gold miners to 1percent from 3 percent effective September is also likely to stimulate gold production. The removal of the export tax on diamond exports, though it can be viewed arbitrarily as not favourable for diamond beneficiation, it will allow for diamond manufacturers, who of late have been facing viability challenges to recapitulate and invest in more sophisticated mining.

Though this is particularly positive for the diamond and small-scale gold miners, the minister’s silence on 15 percent export tax on unrefined platinum was rather toxic following a series of engagements with the miners.

We urge the minister to issue a circular with respect the Government’s position on that, as we fear investor agitation due to the misinterpretation of his silence by stakeholders.

vi. The extension of the tax amnesty by four months to October is also likely to result in more tax payers voluntarily getting into the tax bracket, hence increasing the tax base without much administrative hurdles.

vii. Despite the above, BUY Zimbabwe notes with concern the ever widening budget deficit with second half revenue sitting on $1,8 billion whilst expenditures breached the $2,118 billion mark.

The major worrisome factor is on how this deficit will be financed in an environment where the revenues continue to shrink due to persistent company closures and the low appetite by the external world to extend direct budgetary support to Zimbabwe.

viii. The other concern is the deceleration of the economy which is now poised to grow by a paltry 1,5 percent from the initial forecast of 3,2 percent resulting in contraction of government revenues from the initial budget of 4 billion to $3,6 billion giving a projected budget deficit of $400 million.

ix. Another critical concern is the ever widening current account deficit. Though exports grew by a mere 0,4 percent to $1,3 billion, imports grew by 2 percent to $3,1 billion, resulting in a current account deficit of $1,8 billion during the first half of the year.

More worryingly the deficit is being financed by private sector borrowing further raising the risk of industry failure due to debt overhang.

x. The elephant in the house, however remains, the government expenditure mix which is heavily skewed in favour of recurrent expenditure, where out of every dollar the government collects, 83 cents is channelled to salaries.

Though the minister was equivocal on the need to bring down the wage bill to 40 percent of expenditure, most of us have been left guessing on the possibility of civil service retrenchments as that presents the only practical way to reduce the wage bill to such levels in the shortest possible time.

Civil service retrenchments are a convenient option but we do not see it as an easy solution to reducing government expenditure on employment costs to 40 percent of the budget given that the civil service has to be cut by 50 percent.

Additionally, the entire retrenchment exercise must be treated with caution as it can further strain the already unimpressive tripartite relationships amongst government, labour and business.

xi. The mid-term statement highlights that the prevailing usurious lending rates are delaying the recovery of the manufacturing sector, given that the cost of credit is toxic.

We compel the Government to expedite the process of negotiating cheaper lines of credit and embracing the value chain systems by not funding hopeless companies which can only be a drain to the fiscus.

xii. Non performing parastatals have amazing salary accruals with the NRZ owing $140 million, Air Zim about $136,4 million and GMB owing about $20 million.

Such a state significantly renders these parastatals technically insolvent.

The State needs to take urgent steps to reform such parastatals given that even the ZIMASSET document is premised on the efficiency of these State enterprises. There is an urgent need to strengthen the management framework in parastatals, local authorities and government departments if we really care about sustainable recovery of the private sector.

Duties and flexible labour laws alone may allow companies to leave for now in order to die another day.

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