ANALYSIS| Zim’s Growth Target Challenged by Debt, Informal Economy Woes

By Newton Mambande

By Newton Mambande

HARARE – ZIMBABWE’S economy continues to grapple with high unemployment, a weakening local currency, and severe power outages. Finance Minister Mthuli Ncube’s mid-term budget review has come under scrutiny for its effectiveness in addressing these pressing issues. From an economist’s perspective, the budget falls short in several key areas.

Failure to Address Closures and Downsizing

The budget review fails to highlight significant closures and downsizing of operations by major retailers like Pick ‘N’ Pay, OK Zimbabwe, and Choppies. These closures contribute to job losses and erode the tax base, further constraining revenue collection. The Zimbabwe Revenue Authority (Zimra) has struggled to widen the revenue base, and this trend is concerning.

Revenue Base Woes

Zimbabwe’s economy has been rebased to $45.7 billion, with a revenue-to-GDP ratio of 15%. This highlights inefficiencies in tax administration and the dominance of the informal economy. The government might consider increasing taxes on the informal sector or expanding VAT, but such moves could spark inflation or unrest if not implemented carefully.

Debt Burden

Zimbabwe’s public debt stands at $21.5 billion, or 44% of GDP, with arrears amounting to 36% of total debt. This poses significant liquidity challenges and restricts access to concessional financing. The government must prioritize debt management and transparency to re-engage with international lenders and unlock concessional finance.

Growth Targets

The government retains its 6% GDP growth target, focusing on sectors like agriculture and electricity supply. However, this ambitious target faces risks from softening global demand and declining mineral prices. If growth falls short, budget projections could falter, leading to spending cuts that disrupt fiscal plans and economic momentum.

Currency Uncertainty

Finance Minister Mthuli Ncube’s budget review is notably silent on the future of the USD currency in Zimbabwe, failing to assure investors about its stay till December 31, 2030. Furthermore, the government remains mute on rumors about the return of a local currency to establish a mono-currency regime, creating uncertainty and potentially deterring investment. This lack of clarity on the currency front is a significant oversight, given the importance of stability and predictability in economic policy for attracting and retaining investment.

Conclusion

In conclusion, while the mid-term budget review showcases macroeconomic stability through currency reforms and fiscal discipline, it falls short in addressing pressing issues affecting ordinary Zimbabweans. The government must prioritize structural reforms, diversify the economy, and enhance the business environment to achieve sustainable economic transformation. Without accelerated execution and structural reform, the risk remains that headline growth will not translate into tangible improvements in livelihoods or investor confidence.

Newton Mambande is an entrepreneur and researcher. He has published scientific research scholarship in journals. He is reachable via email newtonmunod@gmail.com WhatsApp or Call +263773411103