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2017 Pre-Budget Presention by the Minister of Finance 9 November 2017

Setting the Tone: Revenue Targets, Collection and Performance of the 2017 National Budget and Key Assumptions for 2018”

Presentation by

Minister of Finance & Economic Development

Hon. Dr. I. M. C. Chombo (M.P.)

Pre – Budget Seminar, Elephant Hills, Victoria Falls

9 November 2017

  1. Introduction
  2. Macro-Economic and Fiscal Performance: 2017
  3. Macro-Economic and Budget Framework: 2018
  4. 2018 Budget Thrust and Priorities
  5. Assumptions/Expectations to Underpin Growth & Development
  6. Conclusion

 

Introduction

1) The 2018 National Budget draws guidance from the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset).

2) This was succinctly buttressed by His Excellency, the President’s Ten Point Plan in April 2016.

3) Consistent with the theme of this Seminar, ‘ Consolidating Economic Development, Transformation Through Domestic Resource Mobilization’ , the thrust of the 2018 National Budget will be on measures centred around fiscal consolidation, addressing market indiscipline, stimulating productivity and expanding the revenue base.

4) This 2018 Pre-Budget Seminar, therefore, provides an opportunity for Hon. Members to deliberate and proffer policy interventions that address the fundamental challenges facing the economy, as well as its transformation.

5) Hon. Members may recall that the economy was projected to grow by 1.7% in the 2017 Budget presented on 8 December 2016.

2017 Fiscal Framework

 

2016

2017 Orig. Budget Proj.

Nominal GDP (US$M)

16 149

16300

Real GDP Growth (%)

1.1

1.7

Annual Inflation (%)

-1.1

-1.6

Government Revenue (US$M)

3 650

3 700

Government Expenditure (US$M)

4 593

4 100

Recurrent expenditures

3 762

3 630

Capital Expenditures

831.5

520

Exports of Goods and Services (US$M)

4 098

4 123

Imports of Goods and Services (US$M)

6 427

6 221

 

Macro- Economic Performance

GDP

In 2017, the more than anticipated strong performance in agriculture (15.9%) and mining (7.5%), supported by improved electricity generation (10.7%), necessitated an upward review of our growth projection to 3.7%.

Exports and Imports

In tandem with improved GDP growth, Exports for the period January to September were also on the increase and stood at US$2.6 billion, against US$1.8 billion of 2016. This translates into a 44% increase.

Exports and Imports (Cont’d)

1) With Imports estimated at US$4 billion, the trade deficit narrowed to US$1.5 billion, from US$2 billion recorded in same period of 2016.

2) The improvement in the trade balance is on account of import management measures instituted by Government, reduction in food imports and improved availability of locally produced goods.

2017 Fiscal Performance

Revenues

1) The improvement in GDP growth, coupled with enhanced revenue collection methods and administrative efficiencies by ZIMRA, translated into higher revenue collections, which were US$2.812 billion between January to September 2017.

2) This is against a target of US$2.741 billion, giving positive variance of 3%.

3) By end of December 2017, cumulative revenue collections are estimated to reach US$3.9 billion, against a target of US$3.7 billion.

4) This represents an 11.4% increase, from previous year’s collections of US$3.502 billion.

5) In terms of revenue heads contributions, Value Added Tax continued to lead at 28%, followed by Pay as You Earn (PAYE) at 19%, and Excise Duty, 18%.

Expenditures

While Revenues performed well above target, expenditures were under pressure from drought, employment costs, by-elections, debt servicing and emergency responses to Cyclone Dineo. As a result, expenditures stood at US$3.33 billion, against a target of US$3.11 billion, between January and September 2017.

 

Actual

(US$mil)

Target

(US$ mil)

Variance

(US$ mil)

Variance

(%)

Total Expenditure

3 326,8

3 109.3

217.5

7.0

Employment Costs

2 434.5

2 271.5

163.0

7.2

Operations and Maintenance

414.9

295.5

119.40

40.4

Interest

122.7

133.5

(10.8)

(8.1)

Capital

354.7

408.8

(54.1)

(13.2)

 

Recurrent Expenditures

1) Budget disbursements towards Recurrent Expenditure for the period January to September amounted to US$2.97 billion, against planned disbursements of US$2.7 billion.

2) This resulted in disbursement overruns of US$270 million.

Capital Budget

1) On the contrary, expenditures under the Development Budget under-performed by US$54.1 million during the same period.

2) This situation has meant deferring implementation of a number of Zim Asset priority projects and programmes that are necessary for us to accelerate economic growth and development.

Expenditure Outlook to December 2017

In the outlook to December, cumulative expenditures are projected to reach US$5.582 billion, up from the budgeted US$4.1 billion.

Budget Deficit: 2017

1) This would raise the Budget deficit for the full year from US$400 million to US$1.82 billion, mainly financed through Treasury bills and recourse to overdraft at the Reserve Bank.

2) Hon. Members will agree that this is not sustainable, and is undesirable.

Macro-Economic Framework:2018

1) In 2018, overall economic growth is anticipated at 3%, supported by key sectors of agriculture, mining, construction, tourism, ICT, as well as services.

2) Inflationary pressures, however, threaten to increase to about 2.5% in 2018, with further inflationary pressures expected in the medium term.

3) In line with GDP growth, exports are anticipated to increase to US$4.6 billion, and imports, to US$7 billion.

Growth Assumptions

The projected GDP growth is premised on the following assumptions:

• normal rainfall patterns;

• scaled up funding for agriculture;

• improvements in commodity prices;

• reliable supply of utilities, mainly electricity, water;

• improved investment inflows, benefiting from the ease of doing business reforms; and implementation of Special Economic Zones, among other factors.

 

2018 Budget Framework

Consequently, in line with economic growth projections, the following Budget Framework is being proposed for 2018.

Revenues

In 2018, Revenues are projected at US$4.0 billion, comprising of the following:

• Tax revenue, US$3.763 billion; and

• Non-tax revenue, US$237 million.

Retention Funds

1) The above Revenues will be complemented by inflows under Retention Funds, projected to raise US$293 million.

2) As part of strengthening accountability and transparency over public resources, Treasury from the 2018 Budget, will require that all Revenue Retention Funds are appropriated by Parliament, and accounted for through the Public Financial Management System (PFMS) and integrated into the Budget documentation.

Fiscal Anchors

The 2018 National Budget will strengthen fiscal discipline and improve the credibility of the Budget through adherence to the following anchors:

Budget Deficit

Ø Fiscal deficit targeting, paying particular attention to its financing

Borrowing from the Reserve Bank

Ø Limiting Government borrowing form the Reserve Bank

Government Debt

Ø Reducing Debt to GDP ratio

Fiscal Anchors (Cont’d)

Development Budget

Ø Increasing spending on infrastructure.

1) Adherence to the above fiscal anchors is meant to support the goal of restoring fiscal discipline and economic stability, and also provides clearer guidance to Ministries on what they can spend.

2) Consistent with this stance, I am proposing to contain the Budget deficit to levels consistent with the total available domestic and external financing, without resorting to either Reserve Bank borrowing or payment in Treasury bills.

2018 Budget Thrust and Priorities

The 2018 Budget should be geared towards sustaining the current growth momentum in line with the Zim Asset agenda.

The focus will, therefore, be on:

Ø maintaining the growth momentum in agriculture;

Ø infrastructure development;

Ø social services delivery;

Ø implementation of other poverty reduction programmes; as well as promotion of value addition of our minerals and agricultural produce through agro-processing.

Specifically, notwithstanding that Employment costs continue to constitute a disproportionate share of the Budget, I propose that the 2018 Budget to focus on the following priorities:

1) Preparations for the 2017/18 agricultural season;

2) Infrastructure rehabilitation and development;

3) Completion of most Government unfinished projects, including office accommodation, clinics, District Registry Offices, and the digitalisation project, among others;

4) Social Services delivery in the areas of health, education and social protection; as well as

5) The 2018 General Election.

Empowerment

Poverty reduction and empowerment projects and programmes will also be prioritised in line with the IPRSP objectives and targets.

Value Addition

Furthermore, the Budget proposes to support beneficiation and value addition initiatives in order to derive more value from our exports, while also managing our import bill.

Exports Promotion

Support to exporters in order to generate more foreign currency.

Investment Environment

1) In line with the investment thrust, the Budget also seeks to create a conducive domestic investment environment, targeting both local and foreign investors.

2) The respective line Ministry is making the necessary review to align the Indigenisation and Empowerment Act with the clarifications by His Excellency, the President.

3) Other interventions geared at improving the business environment and efficiency, such as the ‘ Ease and Cost of Doing Business Reforms’, will be pursued as integral supportive measures to this Budget.

Re-engagement

Pursuing the re-engagement process with international financial institutions, in particular the World Bank and the African Development Bank with a view of clearing arrears, should also unlock external new financing much needed for complementing our own internally generated resources.

a) Government will also remain engaged with cooperating partners who complement Government developmental Zim Asset initiatives.

Support for Productive Sectors

In addition, further tax incentives/relief will also be considered in support of our productive sectors.

Revenue Enhancing Measures

Revenue enhancement measures will also be prioritised focusing on the following interventions:

Ø Widening of the tax base to include most of the unregistered enterprises under the informal sector;

Ø Further strengthening administrative capacity of ZIMRA and other related Government institutions involved in tax enforcement and compliance;

Ø Prioritising automation of revenue collecting systems;

Ø Introduction of appropriate infrastructure and systems for enhancing efficiencies at border posts, alongside full implementation of the One Stop Border Post;

Ø Improving efficiencies in utilisation of scarce revenues

Assumptions/Expectations to Underpin Growth & Development

Successful implementation of the Budget and achievement of growth targets will require the following:

Environment

A peaceful environment, during and after the election period.

Business Culture

A transformed culture in conducting business amongst all stakeholders:

Ø Public Enterprises governance and management, focusing on profitability and reducing recourse to the fiscus.

Ø Central Government operations that embrace Results Based Management, for better performance results.

Ø Local Authorities that are efficient in revenue generation, service delivery and are sensitive to the needs of the ratepayer.

Ø Private sector that is responsible, innovative and creative, effectively taking advantage of domestic and global opportunities;

Research and Development

Fostering a strong culture of research and development, and utilising the results to produce highly competitive products;

Information Communication Technology

Embracing information communication technologies, to improve efficiency and competitiveness, as well as reduce opportunities for rent seeking and corrupt tendencies;

Discipline

Fostering a strong sense of discipline across all institutions, and zero tolerance on corruption.

Dealing with profiteering, rent seeking, creation of artificial shortages, unwarranted price hikes, among others.

Labour Market Practices

The need for labour market flexibility that allows growth in employment creation

Project Management & Implementation

Improved capacity in projects implementation across all tiers of Government and the private sector.

Governance Structures

Streamlined structures and Conditions of Service in Government, Legislature and various Commissions.

 

 

 

Honouring Obligations

Culture of honouring obligations, and this applies to all, that is Government, local authorities, parastatals, the private sector, including the individual farmer.

Conclusion

The above form a basis for Honourable Members to debate and ultimately proffer inputs and proposals for the 2018 National Budget to consolidate our economic development and transformation through sustainable domestic resource mobilisation efforts that will provide the impetus for the implementation of Government programmes and projects that have a long lasting impact on the livelihoods of our citizens.

With regards to the Constituency Development Fund, individual Members of Parliament may take note that Treasury has fulfilled its obligation by setting aside the requisite amount and the ball is now in the court of Parliament to establish the necessary disbursement and accounting mechanisms.

 

I THANK YOU

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