Zimbabwes economic structure resembles that of a lower
middle-income country. The country has a relatively sophisticated and
advanced financial system, a vibrant stock exchange and advanced
manufacturing sector. Economic performance revolves around the
principal sectors of agriculture, mining, and manufacturing. Tourism,
which traditionally constitutes 7% of the GDP, has, in recent years,
been on a downward trend, mostly due to sanctions imposed by the
Euopean Union and the USA in 2002. Economic growth is strongly
influenced by the annual performance of the agriculture sector, which,
in turn, provides most raw materials to the manufacturing sector.
THE REVISED 2009 BUDGET STATEMENT
The new Minister of Finance under the inclusive government, Hon. T. Biti, presented the revised budget on 18 March 2009. The purpose of the revised budget is to synchronise the 2009 Budget with recent political and economic developments including the short-Term Emergency Recovery Programme (STERP).
Objective of the budget
The broad goal is to use fiscal policy as a tool in turning around the economy and give the people of Zimbabwe better living standards. The specific objectives are:
1. Alignment of tax and other economic measure to STERP, including any new initiatives and revisions where appropriate.
2. Downward revision of the overall 2009 Bidget Framework in view of actual developments in January, February and early March 2009.
3. Reconfiguration of the Estimates of Expenditure to incorporate additional ministries in line with the formation of the Inclusive Government.
Engagement of the International Community
The budget proposes the engagement of the international community for financial support as the country's envisaged 'reconstruction' expenses over and above those proposed in the budget are well above the country's capacity to generate revenue. The international community will also play a critical role in supporting self-liquidating lines of credit required by our industries [IDC as well] to restore production levels.
The Minister said that without significant external financial resources, it will be difficult to support STERP and other Government programmes critical for the country to overcome economic decline and alleviate poverty. The measure needed to build confidence are:
a "new people-driven Constitution"
undertaking the process of national healing
laying the economic foundations for the resumption of growth and social development
serious engagement with all cooperating partners, including the World Bank, International Monetary Fund, as well as the African Development Bank, with the objective of restoring the country's status as a credible recipient of external financial assistance.
It is hoped that as confidence is restored, private sources of external finance will also become available to Zimbabwean companies and banks.
Taxation and royalty levels will, however be reviewed in line with international best practices.
The manufacturing sector will be at the epicentre of this stabilisation programme. The sector is already beginning to benefit from the arrangement of external lines of credit for the importation of raw materials and retooling, thereby ensuring that the current industrial capacity utilisation is increased from the current low levels of around 10% to over 60% in the next six to nine months. However, the sector is facing stiff price competition from imported products and really need increased capacity utilisation to decrease per-unit costs of production.
Demand Side Reforms
The precondition of any capacity based stabilisation programme is the implementation and execution of a sound macro-economic stabilisation programme. Also central is th obligation to ensure strict fiscal discipline of a carefully-managed budget deficit and one that is not funded by the printing of money.
Fundamental principles of the proposed macro-economic stabilisation measures are:
Cash budgeting for fiscal discipline;
A positive real interest rate regime [1-3% above LIBOR];
Raising savings to above 25% of GDP;
A vibrant labour market policy;
A Social Contract, based upon respect of the contracting parties;
A market-based exchange rate regime;
Use of multiple currencies as legal tender, and
The removal of foreign exchange surrender requirements.
KEY PILLARS OF STERP
economic stabilisationValues and Aspirations
the rule of law
crafting of a new people-driven Constitution
restoration of property rights
restoration of political legitimacy
freedom and liberties
restoration of personal measures
opening up of the media, as well as the restoration and re-integration of Zimbabwe into the community of nations.
The values upon which STERP is based are: justice, fairness, openness, tolerance, equality, non-discrimination and respect of all persons without regard to race, class, gender, ethnicity, language, religion, political opinion or place of origin or birth.
PROPOSED REVISION OF THE 2009 BUDGET
STERP and the 2009 Budget are aimed at consolidating the key macro-economic policy shifts, most of which are already beginning to bear fruit. Therefore, the 2009 Budget proposals were revised as follows:
Revenues and Other Policy Measures
As a result of developments to date outlined earlier, revenue anticipated for the 2009 fiscal year was accordingly reviewed downwards from US $1.7 to US $1 billion.Table 2: Proposed Duty Rates
Statutory Instrument 5 of 2009 which enforced dual pricing was revoked as at present, no business is still trading in the local currency. This means no business can claim to want to pay tax in Z$ as the currency of trading
Duty is charged on excess goods that are not accommodated in the travelers' rebate of US $300 per calendar month was revised as follows:
Whilst this measure will benefit consumers, it translates to more price competition for local companies involved.
This budget is an exception in that it is a budget that really operationalises the priorities of the current economic blueprint, STERP, thereby giving it a better chance of achieving its objectives.
For the budget to be successful in achieving its objectives, government must fulfill its mandate of creating an enabling environment for the private sector to operate successfully and provide it with the requisite revenue. In addition, some donor funds and/or credit lines are necessary.