“Austerity for Prosperity”

2019 Budget Speech presented to Parliament by Hon. Mthuli Ncube, Minister of Finance and Economic Development, on 22 November 2018

I feel honoured to present my maiden Budget Statement to this August House.

As we are all aware, Government, under the New Dispensation set out a long term goal of transforming the country into an Upper Middle Income Society – Vision 2030.

To achieve this Vision, Government developed a short term stabilisation strategy – the pdf Transitional Stabilisation Programme (October 2018 – December 2020) (5.18 MB) , which is already under implementation.

The Transitional Stabilisation Programme’s immediate objective is macro and fiscal stabilisation and laying a solid foundation for attaining the triple ‘S’ growth – strong, sustainable and shared.

Such growth will be anchored on good governance and promotion of democratic principles, equitable access to means and outcomes of production, as well as modern infrastructure that supports day to day socio-economic activities.

Further, strong, sustainable and shared growth will enable us to achieve efficient delivery of public services and the restoration of Zimbabwe’s rightful place in the region and global economy.

The 2019 Budget, therefore, constitutes an initial policy and financial instrument for implementing the Transitional Stabilisation Programme by powering the respective drivers for change and development.

Specific interventions in the Budget were informed by various contributions received through stakeholder consultations, including through social media platforms.

I am sincerely grateful for all the inputs that I received.

Broadly, key objectives and priorities from consultations revolve around the following:

• Decisively dealing with fiscal indiscipline through use of austerity measures;

• Removal of pricing and policy distortions; 

• Improving foreign currency generation and establishing efficient and optimal mechanisms for its allocation;

• Jobs creation, particularly for the youths, being the new entrants into the labour market;

• Promotion of productivity and export growth through incentives;

• Efficient public service delivery and not just input;

• Parastatals reforms and privatisation for a private sector led economy;

• International re-engagement, clearance of debt arrears and investment promotion;

• Investing in research and development;

• Empowerment of Provinces and Districts;

• Gender equity promotion;

• Promotion of good governance;

• Fighting corruption; and

• Turn Zimbabwe into the gateway for investment into Africa.

In the same vein, stakeholders emphasised on the importance of co-ordinated, predictable and consistent policies, void of reversals, in order to support forward planning and business confidence building on the part of the various economic agencies.

These issues are at the core of a progressive economy and, precisely, the 2019 Budget seeks to address these challenges.

However, in view of fiscal capacity limitations under the Transitional Stabilisation Programme, the 2019 and subsequent Budgets, will have to make choices against high demands.

Therefore, the 2019 Budget, primarily targets macro-economic and fiscal stabilisation and implementation of high impact projects and programmes, which lay a solid foundation for a private sector led growth. The desired triple ‘S’ growth should also maximise productivity and jobs creation.

Realising the above requires unity of purpose, high level of competencies, as well as commitment and full participation of all stakeholders during implementation of the Transitional Stabilisation Programme and the 2019 Budget.

The Budget, therefore, will prioritise strengthening of institutional capacity in terms of planning, implementation, monitoring and evaluation to ensure that the TSP remains on track, attaining planned measurable results that are aligned to targets and objectives.

I, therefore, appeal to all implementing agencies to apply themselves diligently for the success of this Budget and the Transitional Stabilisation Programme, as we move a step towards attaining an ‘Upper Middle Income Society by 2030’.

Policy thrust

The primary objective of the 2019 Budget is to stabilise the economy by targeting the “twin deficits” of fiscal and current account, which have become major sources of overall economic vulnerabilities, including inflation, sharp rise in indebtedness, accumulation of arrears and foreign currency shortages.

Correspondingly, the 2019 Budget recognises the current constraints of limited fiscal space against high demands. Therefore, it initially focuses on quick-win flagship projects and programmes across key sectors of the economy, with a view of stimulating inclusive growth with jobs.

Consequently, the 2019 Budget prioritises infrastructure rehabilitation and development which ordinarily supports our productive sectors besides other social-economic activities.

Sustainable growth hinges on prudent exploitation of natural resources and hence, the Budget pays more attention to promotion of good practices in environmental management.

In the same vein, the value addition and beneficiation strategy is being advanced in order to maximise benefits in terms of employment and incomes.

Furthermore, the Budget seeks to improve confidence by removing various policy and price distortions, which penalise efficiency and promotes corrupt and rent seeking practices.

Measures on reducing expenditures and mobilising more resources through taxes, ordinarily entail foregoing certain benefits and opportunities, and therefore, sacrifice.

However, the objective is to build the basis for a prosperous economy, in line with our Vision 2030. And precisely, this Budget under the theme ‘Austerity for Prosperity’ promises a better future by doing the right things henceforth.

Reference to austerity for a better future, reminds us of a quote from the 19th Century Philosopher, John Stuart Mill that, “I have learned to seek my happiness by limiting my desires, rather than in attempting to satisfy them”.

This should spur us towards realisation of Vision 2030.

The 2019 Budget drivers for transformation

Consistent with the Transitional Stabilisation Programme, Government’s preoccupation is to stabilise the macro-economy in the shortest possible period.

Accordingly, the 2019 Budget seeks to positively contribute towards realisation of transformation and development. All stakeholders agree that the 2019 Budget ought to give focus and prominence to the drivers of this transformation which the country critically requires.

In my capacity as Minister of Finance and Economic Development, I subscribe to the call that I facilitate, with the support of the rest of Government, that the 2019 and future Budgets achieve distributive efficiency of scarce public resources towards strategic public service delivery, including promotion of production.

It is now a fundamental principle that our Budget turns away from being input driven and focus more on output, results, and impact which invariably mean maximum service delivery and accountability.

In light of the foregoing, the 2019 Budget allocations pay maximum attention to the drivers of the transformation and development which are as follows:

• Macro-economic Stabilisation;

• Investment for jobs and inclusive growth;

• Food security and social protection;

• Infrastructure Development;

• Human capital development;

• Natural Resource Management;

• Institutions and governance;

• Voice and accountability;

• Globalisation;

• Privatisation of parastatals; and

• Peace and security

Macroeconomic stabilisation

Current Account Deficit

The 2019 Budget also needs to address the “twin deficit” by implementing measures which contain the persistent and unsustainable current account deficit.

Our exports are largely uncompetitive due to cost and inefficient production. In addition, our reliance on primary commodity exports means less value compared to high value processed goods.

The import bill has been dominated by a wide range of imports, some of which are not critical or strategic.

Going forward, measures to address the current account deficit include the following:

• Supporting export oriented production e.g. horticulture;

• Strategically manage available foreign currency by prioritising import substitution production e.g. retooling and raw materials;

• Decisive action on revival of ZISCO Steel and Cold Storage Commission, local drug manufacturing etc. to boost exports while limiting on import demand;

• Value addition and beneficiation in mining and agriculture;

• Review import duty dispensation for some of the projects and programmes, e.g. National Project Status.

Monetary Policy Supportive Measures

Addressing the current macro-economic vulnerabilities requires well-coordinated fiscal and monetary policies that reinforce each other in the quest for macro-economic stabilisation.

Accordingly, Treasury and the Central Bank will have to work more closely to ensure that this policy reinforcement is achieved.

It is critical that monetary policy promotes sustainable money supply growth, in line with desired inflation levels. Instruments, such as savings bonds, which are already being utilised for mopping up excess liquidity will be appropriate for this purpose.

In this regard, the operationalisation of the Monetary Policy Committee remains urgent and needs to be implemented by the first quarter of 2019.

Multi-Currency System

The multi-currency system remains in place, with the US dollar being the currency of reference, out of the currency basket.

Government is mindful of the need for preservation of value, hence, the move taken to decisively implement measures, focusing on addressing the budget deficit, money supply growth, current account deficit and inflationary pressures.

It is important to note that, apart from prudent fiscal and monetary policy measures, disciplined market conduct by all economic agents is also key in preservation of value.

Foreign Currency Allocation

Going forward, there will be gradual movement towards a more efficient and optimal foreign currency allocation system. Indeed, this Budget is consolidating the value preservation roadmap through macro-fiscal consolidation measures.

In the interim, steps are being taken to establish a Foreign Currency Allocation Committee to promote efficient management of our foreign currency inflows.

Investment for Jobs and Inclusive Growth

Investment is equally a key driver in the transformation and development of our country. Therefore, we desire to raise the levels of investment.

Investment is critical not only for production of goods and services and infrastructure development, but also as a conduit for jobs creation, as well as skills and technological transfer.

Further to our mantra, “Zimbabwe is Open for Business”, the measures we have kept sharpening for attracting, promoting and nurturing both local and foreign investment, are proving effective, as demonstrated by the value of projects negotiated standing at more than US$15 billion.

Manufacturing

The Manufacturing sector is a major source for job creation and foreign currency earnings. It also provides scope for diversification, that way cushioning the economy from various market risks.

While industrial capacity utilisation has averaged around 40%, the 2019 Budget proposes implementation of measures to address the challenges faced by the manufacturing sector, and help raise capacity utilisation further.

It is imperative that we revive, transform, and grow the existing industry, that way, pushing up productive capacity utilisation.

Specific measures proposed through the Transitional Stabilisation Programme and this Budget are as follows:

• Negotiation for affordable medium and long-term lines of credit;

• Promoting and strengthening value chains and linkages;

• Export promotion;

• Level playing field through removing distortions and promotion of competitiveness; and

• Establishment of a Venture Fund for retooling industry.

Critically, this Budget lays the foundation for the resuscitation of our local industry, including ZISCO STEEL, and the Cold Storage Company (CSC), largely through the much needed fiscal incentives and policy prescription.

I propose an allocation of US$47.6 million for the 2019 financial year for the Ministry of Industry and Commerce.

Small, Medium Enterprises (SMEs)

In addition to macroeconomic consolidation, the TSP gives emphasis to investment and support to the SMEs sector, which absorbs a growing number of our people as entrepreneurs and workers. Investment includes infrastructure for use by SMEs.

This Budget seeks to contribute towards the establishment of Venture Funds, targeting the game changing SMEs sectors. The Venture Funds will augment the role of the Empower bank and Women’s bank.

Inclusive growth presupposes support towards establishment of companies and viable income generating projects, not only in cities and towns, but in our Districts and Growth Points.

Gender Mainstreaming

The 2019 Budget will prioritise integration of gender across all sectors of the economy critical for achieving equitable, sustainable and inclusive social economic development

This is in line with Government’s commitment under the Gender Responsive Budgeting Strategy and the National Gender Policy.

Line Ministries are required to ensure that all developmental progress under their purview and the ecosystems thereof give equal opportunity to women as well as youths.

I, therefore, propose to allocate US$381 million for the Ministry of Women Affairs, Community, Small and Medium Enterprises Development for the 2019 financial year

Ease of Doing Business

The 2019 Budget proposes speeding up of ease of doing business reforms, including the long awaited operationalisation of the Zimbabwe Investment and Development Agency, ZIDA.

I particularly urge line ministries and local authorities to take decisive measures to achieve ease of doing business in their respective areas.

I believe the respective Parliamentary Portfolio Committees also need to play their oversight role in order to ensure that, as a Nation, we do not pay lip service to the ease of doing business, as we are in competition for investment with other investment destinations.

I want to put on record that Government stands ready to explore opportunities and measures for facilitating entrepreneurship as it is through entrepreneurship that we can realise our goal of increasing production as well as job creation, buttressing a private sector led economy.

Agriculture & Food Security

Development and transformation of the country is, to a larger extent dependent on our capacity and ability to produce and attain food security.

Furthermore, agriculture is a critical sector which sustains the rest of industry and contributes significantly to livelihoods, employment and export earnings for the country.

Therefore, the 2019 Budget prioritises support through facilitation of partnership with financial institutions in credit financing to our farmers under government schemes and contract farming as well as support to vulnerable households.

Furthermore, the Budget supports irrigation development, mechanisation and subsidy arrangements in grain marketing.

The other specific measures are as follows:

• Roll out the revised 99 Year lease to facilitate private sector financing to the rest of the farmers;

• Adopt measures that address low productivity in agriculture, including addressing land utilisation;

• Dealing with price distortions by benchmarking to import parity;

• Finalise setting up of a Commodities Exchange, hence opening up space to private sector players, thus shifting the burden from fiscus;

• Implement a robust loan recovery system to promote roll over of financing;

• Restructure the Grain Marketing Board and separate accounts between Strategic Grain Reserve and commercial activities, while safeguarding food security and price stability;

• Observance of the rule of law, property rights and BIPPAs;

• Promoting out grower schemes by the private sector; and

• “Crowding in” financial institutions.

I propose an allocation of US$989.3 million to the Ministry of Lands, Agriculture, Water, Climate and Rural Resettlement.

Infrastructure Development

A key driver for economic transformation is infrastructure development. Accordingly, it is critical that more resources are re-oriented towards infrastructure development programmes.

To put it in Margaret Thatcher, former British Prime Minister’s words, “you and I come by road or rail, but economists travel on infrastructure”.

Therefore, the 2019 Budget seeks to address infrastructure gaps and give support to key enablers for transformation which are critical for reducing cost of doing business and supportive of industry and commerce.

The target is to allocate 12.6% of the total budget to infrastructure development programmes (excluding agriculture), up from 10.2% of the previous year’s Budget.

I propose to allocate the following resources under the 2019 Budget to the respective infrastructure Ministries of:

• Energy and Power Development, US$16 million,
• Transport and Infrastructural Development, US$399 million; and
• Information Communication Technology and Cyber Security, US$17.9 million.

Focus is also being given to addressing existing and emerging infrastructure gaps, which have put the lives of the public at risk, particularly in the areas of water & sanitation (US$214.5 million) and road network rehabilitation (US$396.3 million).

Government will employ a deliberate thrust to leverage and crowd in private sector participation in the financing and implementation of projects.

Government has adopted PPP models for infrastructure development and other turnaround strategies for tertiary institutions into self-sustaining centres of excellence, with potential to “export” education.

Key initiatives include the following:

• Setting up industrial parks;
• Establishment of innovation hubs and spin off industries;
• Incubation of science and technology based industries; and
• Promote research and development for modernisation and industrialisation.

Treasury has prepared the 2019 Infrastructure Investment Plan as part of the 2019 Budget documents package.

Globalisation and Foreign Relations

Government has consistently proclaimed its resolve to re-engage and integrate into the global village, hence, the interest to re-engage.

This is out of the realisation that through international isolation, we have lost immensely as a Nation, particularly through deprivation of access to international capital markets, technology, trade, among others, resulting in low economic growth.

In order to catch up globally, we have as His Excellency the President, has repeatedly advocated to leap frog and double our efforts towards reapprochement and re-engagement through normalising the country’s relations with all countries, including the West.

We look forward to rejoining the Commonwealth and we have initiated this process.

Most important is the ongoing re-orientation of our Diplomatic Missions towards economic and trade diplomacy. The Budget proposes rationalisation of some of the Missions in pursuit of this objective.

Bilateral Investment Promotion and Protection Agreements (BIPPAs)

Government remains committed to protecting investments that fall under Bilateral Investment Promotion and Protection Agreements (BIPPAs), as it forges ahead on protection of property rights.

Consequently, the two BIPPAs awaiting signature and twenty two BIPPAs under negotiation will go through both the approval and ratification processes in 2019.

Revenue measures and incentives

The revenue measures that I am proposing seek to consolidate gains realised by the productive sectors through extension of existing support facilities, increase productive capacity, exports and import substitution levels, provide relief to taxpayers, as well as enhance revenue through efficiency in tax administration.

The proposals further seek to institute demand management measures, with a view to redirect use of the scarce foreign currency to productive industries.

Revenue Enhancing Measures

Customs Duty on Motor Vehicles

Honourable Members will be aware that Government has, over the years, implemented demand management measures with a view to redirect usage of the scarce foreign currency to productive industries. Such measures include adjustments to the customs duty regime and control of imported goods through the licensing system.

Despite some success, Government has, during the course of 2017 and 2018, witnessed a surge in the importation of nonproductive goods, particularly motor vehicles.

In order to redirect use of scarce foreign currency to the productive sectors of the economy, I propose that customs duty on motor vehicles be levied in foreign currency acceptable as legal tender, with effect from 23 November 2018.

This measure will, however, not apply on imports of commercial motor vehicles and vehicles for use by the physically challenged.

Furthermore, payment of customs duty in foreign currency will also apply on Selected Goods.

This measure will also apply on all import VAT and Surtax.

Payment of Tax in the Currency of Trade

Notwithstanding that companies are appointed as agents that collect revenue on behalf of Government, some companies are not remitting VAT in the currency of trade, taking advantage of the arbitrage opportunities on the informal market.

In order to contain such practices, I propose to compel companies that collect VAT in United States dollars or any other currency to remit VAT using the same mode of payment.

This measure will apply on all other taxes.

Conclusion

In conclusion, this Budget should mark a turning point towards realising the country’s Vision 2030, as austerity will lead us to prosperity.

To quote the Philosopher, Immanuel Kant, “We are not rich by what we possess, but by what we can do without”.

I now commend the 2019 National Budget as detailed in the accompanying Budget Statement to this August House and lay on the table the Estimates of Expenditure (Blue Book).