By Persistence Gwanyanya
It gives me confidence when Treasury prioritises growth and stability at a time when the economy is shaken by global and domestic economic headwinds of historic proportions. Before the general elections of 23-24 August 2023 in which Zanu PF and its President, Dr Emmerson Mnangagwa emerged victorious, the global economy had started to show signs of slowdown while the global commodity prices- mainly minerals-were softening, taking a toll on export revenue growth with concomitant effect on stability.
For a record, Treasury and Monetary Authorities had to bit the bullet to contain volatilities ahead of the general election, through fiscal prudence and tight monetary policy stance, which is very unpopular and therefore unusual as we approached elections.
Three months later, the struggle to sustain growth and stability remains as the global commodity prices remain depressed and El Nino induced drought is projected to continue in the next two agriculture seasons.
So far, the economy has shown resilience with growth now expected to grow 5.5 percent, which is a slight upward revision from 5.3 percent initially forecast, on account of better-than-expected performance of the agriculture sector, in particular tobacco, wheat and cotton. Interestingly, the IMF which is normally conservative about the performance of our economy seems to be optimistic about growth this year, with a projection of 4.8 percent, which is not too different from our official projection.
This performance is not by lucky, but reflects prioritises we made and the determination by authorities to rebuild the economy.
Deserving special mentioning is the progress we have made on turning around our agriculture sector from basket case to food self-sufficiency through mainly proper programming and increased private sector participation.
Agriculture is the third largest contributor to GDP at 11.6 percent and our conservative farming programme namely Pvumvudza/Intwasa programme is now an envy of our regional peers. Going forward investments in irrigation infrastructure and continuation with conservative farming programmes will mitigate the intensity of El Nino induced drought that confronts us and the region. Progress in grain production, mainly wheat and maize has also reduced our import bill by more than US$200vmillion per annum. Whilst agriculture sector growth is expected to slow down from 11.1 percent in 2023 to -4.9 percent in 2024 more will depend on the intensity of the El Nino phenomena.
This only demonstrates that the investments we did in irrigation infrastructure and conservative farming system were crucial decisions we made as a country as climate change unravels before our eyes.
Though mineral prices, except gold, are expected to continue depressed in the next two years, Treasury remains optimistic about mining sector growth prospects. The mining sector is projected to continue growing from 4.8 percent in 2023 to 7.6 percent in 2024 on account of investments in Platinum Group of Minerals (PGM), gold, coal and lithium. Improved electricity supply from domestic production, imports and private sector investments in renewable energy mainly solar, is also seen as supporting mining sector growth. Going forward more emphasis will be on mineral beneficiation to tap more value from our minerals.
Notable intervention is on lithium where Treasury indicated that lithium beneficiation will only be recognised upto carbon level, the fourth state of beneficiation in the medium term. The ultimate objective is the local manufacturing of lithium batteries for electric vehicles.
The slow growth in manufacturing sector doesn’t auger well with the reindustrialise imperative. Growth of the manufacturing sector is expected to slow down to 1.6 percent on account of negative growth of the agriculture sector and tight liquidity conditions. Worryingly, even the targeted 2 percent growth under Industrial Development Policy, is far lower than what is required to fully recover and reindustrialise.
Reflecting the need to mitigate impact of softening global commodity prices and drought on revenue performance, Treasury sought to extend its arm of taxation to the informal sector and the wealth through various taxes.
Clearly, the increase in strategic reserve levy by US$0.03c to US$0.05c for diesel and petrol was necessary to harness revenue from the greater population as this tax reaches everyone directly or indirectly contribute.
We have always dipped into the strategic reserve to respond to economic issues of the day. In the past, Treasury would reduce the exercise duty to cushion the consumers when prices of fuel going up globally. Now, faced with revenue underperformance, it is imperative that Treasury increase the strategic reserve levy.
There are other cocktail of revenue enhancing measures such as increase in toll fees, passport and CVR fees, sugar levy which will all be ringfenced towards specifics for the noble causes. Interestingly, the 2 cents levy on every gramme of sugar in beverages is mainly meant to support the procurement of cancer equipment at a time the citizens had expressed concerns about unavailability of cancer screening equipment in the country.
Though seemly painful the increase in toll fees and passport fees increase are meant to support urban infrastructure development at a time when the fiscus is severely constrained. Interestingly is the wealth fee, which is 1 percent of residential properties with minimum value of US$100 000, which recognise the disparities in wealth distribution.
Importantly, the budget prioritises social security and poverty alleviation with increased allocations for health and education to levels set by the respective declarations. The conversion of Covid – 19 and hardship allowance of US$300 into pensionable allowance for the civil servants will go a long way in supporting the welfare of this constituency. Similarly, the upwards review of taxable income and bonus is seen as a relief for the working population at a time when the liquidity conditions are expected to remain tight.
In the outlook period, growth is expected to slow down on account of softer global commodity prices and El Nino induced drought. Depressed mineral prices will pose risk to revenue performance as mineral revenue contribute about 20 percent to the fiscus. The export revenue is expected to be affected as mining sector contributes about 85 percent of the export revenue. However, we expected the remittances and investments to remain strong, supporting the growth in foreign inflows. Fiscal prudence and tight monetary policy stance are seen as supporting stability in the outlook period. Inflation is projected to end the year around 20 percent and to remain low at 10-20 percent in 2024.
The challenges that confront us requires each and everyone one of us to summon a new spirit of hard work and honest whilst we work towards a common cause.
Persistence Gwanyanya is an Economist, Chartered Banker, a member of the MPC Monetary Policy Statement and Group MD for Bullion Group International. For feedback email persgwa@bulliongroup.co.zw or WhatsApp +263 773 030 691
