Finance minister Mthuli Ncube will next Thursday announce the 2020 Budget Statement at a time the domestic economy is facing serious headwinds stemming from a devastating drought, rising inflation and erratic fuel and power supplies.
Ncube said the budget theme will be on productivity, growth and job creation. His central assumption is that, Zimbabwe which experienced one of its worst droughts in living memory as well as a Cyclone that led to loss of lives in the eastern parts of the country will have normal to above normal rainfall in the summer cropping season. Official figures show that the economy is this year expected to contract by up to 6.5 percent
The Finance minister said the growth will be anchored on agriculture following the abandonment of the Command Agriculture model for the private sector led Smart Agriculture scheme. As we have pointed out in the past, Command Agriculture has become an albatross on treasury and to make matters worse, the programme was clouded by opaqueness, a situation that was criticized both locally and abroad considering that it was funded through public finances.
Under the Smart Agriculture programme, government will not have 100 percent exposure as in the past but will only serve as guarantor for farmers who according to Ncube will receive coupons in which they will use to redeem inputs from supplies.
While this is a step in the right direction, our concern is on the level of non-performing loans that will result from this programme. We envisage a situation where NPLs will hover around 20 percent and this not desirable. Already government has created Zimbabwe Asset Management Corporation (ZAMCO), a special purpose vehicle to clean NPLs on bank’s balance sheets.
ZAMCO succeeded in cleaning toxic loans from banks but recent monetary reforms have affected the entity efforts in recovering funds from debtors and as such its books may not be appealing.
For a Zanu PF that has embarked on populist exercises such as writing off debt for local authorities and the power utility, it would be interesting to find out if Ncube will have the spine to stick to his guns when he faces political pressure.
Smart agriculture will finance mainly the staple maize in which Zimbabwe has no comparative advantage when compared to her peers like South Africa and Zambia which produce higher yields per hectare. So from this, one can say Mthuli’s growth trajectory is premised on import oriented industrialization as opposed to export oriented industrialization. In light of this we expect more rebates in this budget.
In our view, we contend that the Finance minister should shift focus from agriculture to mining particularly gold, coal and chrome. Legacy issues around agriculture make it difficult for the sector to attract significant funding to mechanize in line with modern trends.
More so production of the maize crop is now mainly for domestic consumption instead of exports. For a government that has been frantically making efforts to contain public expending with the view to restore macroeconomic stability, building foreign currency should be a priority in defending the domestic currency which was effectively re-introduced in June this year. A budget that will not stimulate exports will be nothing but a populist project to calm flaring political temperatures. The question is ‘how long can this last?’