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Zimbabwe
Monday, November 30, 2020

Locating the 2021 Budgetary Strategy Paper in the current context

The 2021 pre-budget strategy paper builds on the Transitional Stabilization Programme (TSP) (2018-2020) and seeks to buttress the tenets of the nation’s Vision 2030 premised on achieving a medium-income economy by 2030. Noting Zimbabwe’s pressing socio-economic developmental needs, effort is directed at understanding the adequacy of the proposed budget strategy in addressing the unfolding social and economic realities post COVID-19. Ideally, consideration is made to understand the successes and misses of the TSP as a way of synthesizing how the BSP addresses the same. The developmental needs post covid-19 are contextualized as well as unpacking the budget strategy theme, ‘building resilience and economic recovery.’ Recommendations are proffered noting key economic and fiscal outlook prospects and risks.

Understanding the budgetary theme ‘Building resilience and economic recovery’

Noting the status quo of the economy where growth has been in the negative for two consecutive years, the building of resilience should follow after recovering the economy from the doldrums. The gains from recovering key sectors of the economy can be used to reinforce resilience going forward.

Recovery of the economy should focus on stimulating productivity, increasing capacity utilization and productive efficiency of the local industry. Productive efficiency entails export-competitiveness and the generation of the much-needed foreign-currency earnings.

Considering the subdued demand in the economy owing to low disposable income there is need to stimulate aggregate demand in the economy. The creation of jobs is an avenue of stimulating aggregate demand and also addressing the worsening poverty levels. Recovery of the economy also entails the adoption of climate-smart technologies in agriculture towards attaining food security.

SMEs being key growth catalysts (not only for developing countries) requires that the support structures be adequate to improve their productivity, efficiency and competitiveness. The SME sector having been battered by the lockdown require massive resuscitation. The tourism sector too requires a recovery strategy to reverse the decline by promoting local tourism through adopting favorable pricing models.  Stabilizing the macro-economic fundamentals goes a long way in stabilizing the economy hence the attraction of FDI. The decline in the standards around education and health require massive recovery too. The milestones achieved given the recovery strategies require buttressing and creating resilience on.

Post COVID-19 context

  • Economic contraction (looming recession)

Economic growth remains suppressed owing to Covid-19 induced production, trade and tourism limitations. The lockdown significantly affected the importation of raw materials required in the manufacturing industry. The estimated 27% industrial capacity in 2020 (CZI 2019 Manufacturing Sector Survey), down from 36.4% in 2019 is explained by production interruption by the lockdown. A considerable drop in international tourist arrival is explained by international travel ban meant to contain COVID 19. The government also narrowed developmental expenditure as resources were diverted to fighting COVID-19. Accordingly, the WB expects a further contraction of the economy to -10% in 2020 as prospects for both FDI and remittances remain grim.

  • Macroeconomic instability

With the exception of the period defined by the foreign currency auction system, the inflationary pressure on the ZWL has been intense given the continued depreciation of the local currency against the major hard currencies. The stability in the exchange rate and inflation requires consolidation going forward to gather confidence around the local currency.

  • Reduced fiscal space (Domestic Resource Mobilisation challenges)

Post covid-19, the fiscal space is expected to shrink further. Job losses triggered by covid-19 reduces government’s tax revenue. All the same, the job losses feed the tax-evading informal sector. The 2019 Labor Force and Child Labor Survey notes that 75.6% of total employment is in low productivity informal sector calling for measures to enhance productivity and better working conditions in the informal sector.

  • Retarded human capital development

The lockdown necessitated the closure of schools, colleges and universities thereby stifling the training and acquisition of skills necessary for the development of the economy. Inequality in education is looming given the disparities regarding on-line learning as few students had such access owing to lack of relevant gadgets and data. The education sector currently suffers from the ensuing industrial action and brain drain thus policy ought to speak to the situation.

  • Under-capacitated health sector

The sector has benefitted from multi-stakeholder intervention in controlling Covid-19 but it remains affected by recurring strikes, low morale, lack of resources, and key equipment to fight covid-19. A fiscal boost (financing) is required to upgrade and renovate health facilities and contain the unrest of the health workers. Noting the anticipated a second wave of Covid-19, scaling the capacity and resources in health centers inevitable.

  • Mass Unemployment

The lockdown prompted the down-scaling, retrenchment and closure of some companies leading to job losses. The tourism sector and the manufacturing sector were significantly affected and government ought to be engrossed with job creation initiatives.

  • Rising Poverty

The loss of income associated with job losses, and the closure of market places used by the informal sector exposes an increasing number of people to poverty incidences. Also, the decline in remittances during and after the lockdown further exposes families to poverty. The decline in economic activity disproportionately affect the poor, the disabled and the vulnerable. The ‘working-poor’ class has increased given salaries below the poverty datum line. Urgent fiscal intervention is required to abate the same.

  • Food insecurity

Climate change, natural disasters and lockdown-disturbed supply chains as well as the muddle around land tenure explain food insecurity in the country. Poverty also limits the acquisition of adequate foodstuffs for the family. Whereas development partners continue to provide food assistance amidst claims of politicization of the same, it is the responsibility of the government to guarantee food security decisively.

  • Political polarization

Creating harmony in the political space edifies policy buy-ins and requires the granting of electoral rights to the populace by the government. The shelving of by-elections in Zimbabwe requires revisiting and accord the electorate the right to vote for own representatives in parliament. This helps to settle any perceived unethical accumulation of political power without the ratification of voters.

  • Weakened regional cooperation and economic integration

 The lockdown reduced and, in some instances, barred international trade in order to reduce the spread of covid-19. Trade within SADC, COMESA and other major trading partners has declined and post covid-19, re-engagement and re-defining trade agreements must be the burden of the government. This is expected to increase trade and more importantly, exports as they generate foreign currency earnings highly sort-after by the government. Also, any effort to boost foreign currency earnings must be considered.

  • Social protection deficiencies

Covid-19 exposed the weaknesses of the social protection framework in place in Zimbabwe. Whereas the government moved in to cushion hard hit sections of the society, the methodology was faulty; giving room for corruption and exclusion of genuine cases. Re-working the social protection framework to infuse fairness, equality and timely intervention drums in social justice to the needy class.

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