The Minister of Finance and Economic Development, Prof Mthuli Ncube, delivered a rather quiet mid term budget on Thursday. The minister kept his cool, as he showed that he believes in consistency to achieve his goals as no major policy changes were announced. A statement with little shocks and more of the expected, enough to not trigger any panic in the economy.
Growth was revised upwards from a projected growth of 7.4% to 7.8% in a year that continues to be halted by the pandemic. Such boldness comes from a man who knows that he is coming from a lower base in the previous year, plus the base of this economy, agriculture is going to outdo itself this year.
At the beginning of the year, agriculture had been projected to contribute 11% to GDP but has been revised to 34% warranting the boldness of the minister to raise his economic growth projections. This is however going to be complemented by other sectors which are also registering growth.
Mining industry suffered in the first quarter as mineral output was constrained due to flooding during the rainy season but Treasury expects to achieve the original growth target of 11% in the mining industry. The minister said overall performance for the year remains in line with forecasts supported by favourable international mineral prices, stable power availability and declining inflation.
Mthuli is a minister who believes in growth through good infrastructure and has reiterated that in this mid-term budget as he projected a 7.7% growth in the sector this year. The growth is underpinned by increased Government projects, financial hedging by financial institutions as well as individuals.
On the monetary side, the treasury chief said that he anticipates a continued downward trajectory of inflation till the close of the year. Month-on-month inflation is expected to prevail under 3% during the second half of 2021 while annual inflation is expected to further decline to between 22% and 35% by December 2021.
The 2021 National Budget was premised on revenue projections of ZW$390.8bn and expenditures of ZWL$421.6bn with a targeted budget deficit of ZWL$30.8bn. For the first half of 2021, revenues exceeded their target by about 9% with greater support coming from a positive variance in Corporate Income tax which is an indicator of the resilience in local companies and the benefits of a relatively more stable operating environment. In the outlook, the budget is anticipated to remain more or less on course. One of the major expenditures in the first half was on compensation of employees at ZWL$80bn against a target of ZWL$73.8bn.
The revised target is achievable as the economy suffered heavily last year due to the pandemic, Brexit as well as the China-US trade war. However, this needs us to make use of the current world commodity prices by producing more, reducing smuggling through competitive pricing and unlimiting legislation. The belief in construction is going to lift the country’s ease of doing business ranking if the financial sector is also worked on.
As much as the projections are positive and we also expect a positive trend in inflation, we believe we might miss out on the year-on-year inflation due to problems being faced on the foreign currency auction market. The market is facing challenges of disbursement and this will keep the parallel market active, resulting in the further depreciation of the local currency and an increase in prices albeit slowly.
We expect Treasury to maintain its trend of good expenditure management and we anticipate salaries to be reviewed first and see an adjustment to tax thresholds in the economy later in August in order to boost tax income. However, we do not expect any new taxes other than the adjustments as the economy is already overtaxed.
We believe the equity market is going to continue on a positive trend, as it has crossed the US$5 billion valuation using any exchange rate in the economy. The capital expenditure which is valued at about ZWL67.4 billion (34% of total expenditure) in the first half of 2021 should be commended as a much-needed stimulus for economic growth. More than half of this amount went towards infrastructure projects and equity investments. Going into the second half of the year, the pass-through effects of this expenditure is expected to increase with construction related companies going to close 2021 on a high – Harare