Zimbabwe’s 2010 budget was well received by analysts and business people, but the fragility of the unity government remains a threat to the finance minister’s plans.
Tendai Biti, who inherited a near-basket-case economy when he assumed the role of finance minister in March, was broadly optimistic about Zimbabwe’s prospects, but left little doubt of his concern that bickering within the government was holding the economy back.
The most important tax change announced in Wednesday’s budget was the reduction in the corporate tax rate to 25 per cent from 30 per cent, allied with some tightening up of investment-related tax-breaks for business.
Mining taxation was increased, with higher levies and tighter limits for mining exploration concessions along with an increase in the precious metals royalty for gold and platinum to 3.5 per cent from 3 per cent.
Although some in the mining sector are unhappy at the manner in which their industry was singled out for special attention, Mr Biti pointed out that with the gold price at record levels and platinum prices sharply higher in 2009, the miners had few grounds for complaint.
Economists praised the finance minister’s efforts to streamline and flatten the tax-structure. Nyasa Chasakara, investment analyst, welcomed the increased taxation of the mines saying other regional economies were reaping the rewards of such investments and Zimbabwe should not be an exception.
Industrialist Antony Mandiwanza said he thought the budget would have a “beneficial impact” and particularly welcomed the provision of $53m for rehabilitation of the state-owned electricity company, Zesa, and the extension of import duty relief on imported foods which would keep supermarket shelves stocked.
Although the country’s economic prospects have improved, there is no denying the serious challenges facing the fractious government.
Mr Biti revealed that departmental bids for 2010 had totalled $12bn but actual revenue next year was forecast at only $1.4bn. In fact, total spending will be higher at $2.25bn with the gap being filled by drawing down half of the IMF’s $510m allocation to Zimbabwe, plus foreign assistance.
Employment costs – wages, pensions and allowances – have absorbed 63 per cent of total spending in 2009 and the proportion will be very similar next year, excluding grant aid income. The Minister hopes that the current civil service audit will weed out ghost workers, but economists say this is just a band-aid and root-and-branch public sector restructuring, including large-scale demobilisation of the security forces, is essential.
However, they concede that this will not be possible with a weak and deeply divided administration.
A third issue that Mr Biti left hanging in the air is the country’s foreign debt of $5.4bn which he described as “unsustainable”. The bulk of this ($3.8bn) represents arrears but in the budget there was no mention of any approach to the international community for debt forgiveness and relief.
This is a controversial topic in Harare where politicians from all sides are reluctant to accept that Zimbabwe should be classified as a low-income highly-indebted economy.
Also controversial is the question of bringing back the Zimbabwe dollar which disappeared when dollarization took effect. Mr Biti said the government was unanimous in wanting to maintain the current multiple currency system - meaning the US dollar and the South African rand. However, only a few weeks ago both President Robert Mugabe and central bank governor Gideon Gono called for the return of the local currency.