HARARE – Zimbabwe Finance Minister Mthuli Ncube on Thursday presented a $10,85 billion supplementary budget during his 2019 Mid-Term National Budget Review. Major take-aways from Mthuli Ncube’s presentation budget were government’s first half budget surplus of ZWL$803.6 million, a reduced local debt, a widened tax-free threshold from $350 to $700 and a sharp increase in the cost of electricity for businesses (500 percent) and domestic consumers (300 percent). Creditor updates in this budget presentation ramblingly established an exchange rate loss of US$7 billion by local creditors to the Zimbabwe government. These are creditors who had extended a financial hand to the government during Zimbabwe’s US dollar base currency era, most of them through taking up government issued treasury bills. This exchange rate loss was accrued through government’s deliberate conversion of its estimated US$9.6 billion to local creditors to its local RTGS dollars at a managed rate of one is to one before revoking the very same managed exchange rate regulations without compensation.

Unfortunately for Zimbabwe, the above interventions, as well as other policy interventions in this review, including levying tourists in foreign currency, compelling exporters to pay for electricity in foreign currency, removing duty on solar batteries and some manufacturing components, and a $1,67 billion agro-support for strategic crops still stand short of what Zimbabwe requires at present – a demand-centred-budget and policy framework.

An increase in the tax-free threshold from $350 to $700 is nominal and misleading as it comes at a time the tax-free threshold stood at US$350 before the abandonment of the managed exchange rate era, which is equivalent to $3,391 using the country’s official exchange rate figures. Theoretically, the Zimbabwe government has doubled the tax-free threshold, yet in reality the new tax-free threshold is equivalent to US$72 using the prevailing interbank exchange rate of one US dollar to 9.69 Zimbabwean dollars. Most organisations, including the Zimbabwe government are failing to cushion their employees from the impact of their economic policies with comparative salary adjustments. Guided by the above and benchmarking using a stable USD currency, the purchasing power of this new tax-free threshold is 20 percent of what it was in 2018 during the managed exchange rate era. A snapshot salary survey by ENN established that as a result of dwindling demand for their products, most companies in Zimbabwe, including the Zimbabwe government are failing to cushion their employees from the impact of the new economic policies with comparative salary adjustments. With persistent fuel, water, medical drugs and electricity shortages in the country, the authenticity of Zimbabwe’s much hyped $803.6 million government surplus for the first half of 2019 is put to doubt.

The local creditors’ matrix unpacked earlier, whose exchange rate loss stands at US$7 billion, is another corporate immorality by the Zimbabwe Government whose negative impact Zimbabwe shall endure for years to come. Most of Zimbabwe’s local creditors are financial service institutions and listed companies. Government’s chronological move of converting its US dollar denominated debts to local creditors to a local currency denomination at a government managed exchange rate of 1:1, followed by the floating of the exchange rate under government’s management and eventually abandoning the united states dollar as a base currency and replacing it with a local RTGS dollar without putting in place safety nets for the vulnerable listed companies, financial institutions and investors, both local and international is a serious indictment on the country’s investment risk profile. Again, this move which battered the country’s business confidence and policy support, coupled with evident inflationary pressures has increased the cost of doing business in Zimbabwe to unsustainable levels. From a financial perspective, it is inevitable for businesses to institute another round of retrenchments in a bid to align costs to dwindling incomes.

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On a lighter note, if Zimbabwe poured in US$1.1 billion an equivalence of ZWL$10.6 billion today towards agriculture and strategic crops in 2018 but failed to make an impact, of what impact is this $1.67 billion allocation towards strategic crops support for Zimbabwe in 2019? What key fundamentals has the national government implemented to guard this financial allocation from political abuse? At present, Zimbabwe is experiencing acute bread shortages due to shortages of flour, with millions at risk of starving this year due to a drought induced hunger.

From its policy pronouncements of the past 12 months, it is evident that guided by the Finance Ministry, the Zimbabwe Government has resorted to addressing the country’s financial mismanagement challenges with punitive policy interventions that trigger price increases and inflation, in the process making most commodities unaffordable to the generality of Zimbabweans. The country recorded an annual inflation of 175.66 percent in June 2019, up from 97.85 percent in May 2019, indicative of a nation entering hyper-inflationary mode. Aware of this hyper – inflation axe hovering over the country, the country’s Finance Minister Mthuli Ncube suspended the annualization of inflation statistics for the country with immediate until February 2020 evasively citing a misalliance emanating from the implementation of economic policies on these statistics. If they say numbers do not lie, hiding them from the world will create more speculative challenges for Zimbabwe. The economic history of nations will confirm that the quickest driver for business recovery and growth is consumer demand, and without it, businesses will shrink, unemployment will rise and government income will also fall in real terms. 

Given the country’s unfolding economic reality and the Zimbabwe Government’s documented anti –poor policy interventions and inconsistencies over the past 12 months, it is important to highlight that if the country’s Finance Minister does not immediately institute tangible consumer demand centred interventions, a fresh wave of corporate retrenchments and business closures is inevitable in Zimbabwe.