Business Reporter
The Government will maintain the national budget deficit within the 3 percent of the gross domestic product (GDP) threshold to manage inflationary pressures and entrench stability in the economy, Finance and Economic Development Minister Professor Mthuli Ncube said in the 2024 Budget Strategy Paper released last week.
The Government’s financing requirements are however expected to remain under pressure during 2024 after the Treasury took over the Reserve Bank of Zimbabwe’s external obligations, as well as due to the growing informalisation of the economy and the need to sufficiently provide for the National Development Strategy 1 (NDS1) projects and programmes.
Minister Ncube has projected revenue for the year 2024 at $30,7 trillion against expenditure of $33,1 trillion, resulting in a budget deficit of $2,3 trillion or 1,5 percent of the GDP.
Employment costs would be maintained at levels around 50 percent of revenue, while capital expenditure would gradually increase to 5,7 percent of GDP to address the existing infrastructure gap, the minister said. Further, social spending would be scaled up to address inequality and ensure “no one and no place is left behind.”
“Structural budget rigidity and limited fiscal space are mainly on account of the rising wage bill in relation to other expenditures,” said Minister Ncube. He added the ratio of wage bill-to-revenue ratio had risen from 35 percent in 2020 to around 48,6 percent, above the NDS1 target. This was further compounded by increasing commitments of foreign currency-denominated expenditures that were now “crowding out” expenditures for social sectors and infrastructure development.
“In case of any shock, there will be limited budget flexibility,” said Minister Ncube.
Given the elevated expenditure risks, Minister Ncube said the Government would implement migratory measures including deepening implementation of the value for money principle in all public procurement, implementing single spine pay policy to restore equity and transparency in public service pay administration, adherence to approved budgets, cash budgeting, penalties for commitments outside the budget, prioritising completion of ongoing projects and monitoring and management of payments in foreign currency to ensure effective use of resources.
Economic growth is expected to remain positive and is projected at 5,3 percent, 5,2 percent, and 5 percent for 2023, 2024, and 2025 respectively, in line with the NDS1 targets.
However, the achievement of the projected economic growth for the various years could be undermined by different macroeconomic factors and climate change-related risks.
Potential constraints include growing informalisation of the economy, commodity price volatility, a less favourable rainfall season, expenditure rigidities, and contingent liabilities.
Minister Ncube noted revenue collection risks could emanate from reduced tax compliance and transfer pricing, particularly in mining.
This is further compounded by rising dollarisation, which is shrinking the tax base and promoting the informal sector.
He said full dollarisation had the potential to reduce the taxable base by almost 25 percent.