Government has set a target of reducing its budget deficit to five percent of Gross Domestic Product (GDP) this year from 12 percent in 2018, riding on milestones achieved so far under its Transitionary Stabilisation Programme (TSP).
In his latest progress report on policy reforms, the Minister of Finance and Economic Development, Professor Mthuli Ncube, said the implementation of the TSP, as guided by the 2019 national budget statement, has started bearing positive fruit.
Fiscal consolidation remains a key stabilisation objective of the TSP, he said, and is slowly being attained through containment of fiscal deficit, broadening of the revenue base and curbing leakages and expenditure containment.
“The target is to reduce budget deficits from about 12 percent of GDP in 2018 to five percent in 2019,” said Prof Ncube.
As such, he said Government has made significant progress to date in containing expenditures in key areas. These include discontinuing issuance of Treasury Bills to finance fiscal deficit and successful retirement of 3 188 youth officers, which translates into monthly remuneration savings of $395 per each officer.
In addition, Prof Ncube said Government has effected the five percent salary cut for senior Government officials from the level of the principal directors and their equivalent grades up to the Presidium starting January 2019. Other milestones include freezing hiring of non-critical staff and trimming the bonus budget for civil servants by rebasing it on salaries, excluding allowances. This gave savings of $75 million in 2018, reads the report. Government has also gone further to suspend procurement of ministerial and Parliamentary vehicles despite it being contractual obligation to ensure that resources are channelled towards service delivery.
On the revenue front Prof Ncube said the two cents tax per $1 value transacted was working wonders with nearly $300 million having been realised since its inception last November. Monthly budget deficits declined from $651.2 million in August 2018 to US$39.8 million in September and $242.1 million in November with preliminary indications pointing to a surplus of $732.7 million by end of December 2018.
Prof Ncube said overall in 2019, inflation was expected to slow down to single digit benefitting from the fiscal consolidation measures and containment of money supply growth projected at below 10 percent by year end.
He said the recent Monetary Policy Statement presented on 20 February 2019 has buttressed measures announced last October, which introduced separate FCA accounts and RTGS accounts. These have set the tone for the implementation of currency reforms.
“In particular, the monetary policy seeks to remove the various distortions, which prevented efficient functioning of the foreign exchange market, with distortions on the rest of the economy. Such distortions also fed into multiple pricing of goods and services,” said Prof Ncube.
“The distortions promoted the parallel market to thrive leading to run away exchange rate premiums of as high as US$1:4 bond note and even higher in some cases, which in turn pushed up prices beyond the reach of the majority.”
Prof Ncube said the new monetary policy, therefore, sets a robust market-based framework for determination of the exchange rate, that way, facilitating financial sector stability, containment of inflationary pressures and building of confidence.
Prof Ncube also said Government has succeeded in weeding out illicit fuel deals through removing fuel subsidy by increasing excise duty, which has helped remove arbitrage opportunities. He said the state-owned enterprises and parastatals reform agenda was ongoing with projections that Government will realise at least $350 million from this initial process. The measures are being complemented by on-going ease of doing business and institutional reforms including fostering inclusive dialogue and re-engagement with the international community. Going forward, Prof Ncube projected strong economic activity in key productive sectors in 2019 despite prevailing setbacks such as foreign currency shortage and spoor rains, which have frustrated the agriculture sector. He said mining and manufacturing sectors will remain on solid footing riding on capacity gains achieved last year while the tourism sector is expected to add impetus to overall growth.
“Overall economic performance in 2019 looks positive at a modest 3.1 percent with much scope for improvements as the ongoing policy reforms and anticipated external support start to bear fruits,” reads the report.
The TSP was launched last October as a reform blue-print aimed at stabilising the economy, attracting investment, re-integrating the country into the global economy and laying a foundation for strong, shared and sustained growth. It also contains several key reform initiatives for promoting good governance as an essential ingredient for socio-economic development.