Parliament met yesterday and the main business of the day was the debate on the Midterm budget review and Supplementary budget statement presented by Finance and Economic Development Minister Prof Mthuli Ncube last week on Thursday. Before Members took turns to debate the statement, MDC Leader of the House in the National Assembly, Hon Thabitha Khumalo, denied that her party walked out of Minister Ncube’s mid-term supplementary budget presentation last week, but were locked out as they were praying in the government cause room to break their party’s week-long fast. She said after their prayer session, they went to the House for the budget 20 minutes late only to find that the Speaker of the National Assembly Hon. Adv. Jacob Mudenda had instructed Parliament police to cordon off the House and bar the opposition MPs.
To start off the debate was Budget, Finance and Economic Development Committee chairperson Hon Felix Mhona (ZANU PF Chikomba) who presented a report of the 2019 Mid-Year Budget Review and Supplementary Budget. He said the Mid-Year budget review statement was meant to highlight progress made with regards to implementation of the National Budget and provided a synopsis of macroeconomic developments during the first half of the fiscal year. The statement, he said, allows Members, guided by indications of current performance and projected economic statistics, to consider proposals for necessary fiscal policy interventions to realign the policy thrust towards the broader macroeconomic objectives. The statement also sets the tone for the 2020 budget.
Highlights of the Committee Report
- The statement came amid a background of economic headwinds, characterised by spiking inflation, lack of liquidity, dwindling disposable incomes and a crippling shortage of electricity which has seen households and industry go for up to 18 hours a day without power.
- Compliance to Legislation – The legal requirements underpinning the preparation and presentation of this statement to the House are provided for in Section 7 (2) (a) of the Public Finance Management Act (PFMA) which requires the Minister responsible for finance to “provide full and transparent accounts, from time to time and not less than annually to Parliament, indicating the current and projected State of the Economy, the Public Resources of Zimbabwe and the Fiscal Policy of the Government.”
- Credibility of projections in the Budget Review – The Committee felt vindicated after raising concerns with the initial 2019 budget overall growth projection of 3.1 % amid glaring challenges the economy was facing such as foreign currency supply and allocation inefficiencies, exchange rate misalignment, inflationary pressures, Elnino forecast and reduced aggregate demand. The revised growth projection of -2.1 % is a drift closer to reality although it is worrisome in the context of Sub Saharan Africa’s revised growth projection of 3.4%. The Committee is concerned with inflation projections in the absence of a robust production stimulus. As the Committee rightfully pointed out in its 2019 budget report, foreign currency shortages, revision of excise duty on fuel and payment of duty in forex for selected goods are also expected to drive inflationary pressures.
- Currency issues – The Committee commends the Minister for providing clarity on the currency framework in light of Statutory Instrument 142 of 2019 and after promulgation of new exemptions to the policy which sent wrong signals in the market. There is however need for clarity on the fees and charges on services provided to foreign registered businesses especially haulage trucks transiting through Zimbabwe.
- Budget Information – The Committee calls upon Treasury to work towards improving budget information. The debt information provided on paragraphs 26 to 36 and on Annex 11 is not as detailed as provided for in Section 300 (4) of the Constitution which mandates the Minister to at least twice a year, report to Parliament on the performance of—loans raised by the State; and loans guaranteed by the State; at the same time as the estimates of revenue and expenditure are laid before the National Assembly in terms of section 305, table in Parliament a comprehensive statement of the public debt of Zimbabwe.
- In view of this, the Committee requested the Minister to bring a detailed statement on debt to the House.
- The Committee is concerned about how the budget will be financed, the efficacy of the revenue projections of $14.06 billion and the effects of a domestic financing of $5,8 billion of the gap. The concern arises from the realisation that companies are severely affected by the operating environment especially power which has the bearing on the corporate tax and ability to pay salaries on time. Depressed aggregate demand also has a bearing on VAT, PAYE and Customs Duty.
- The Committee is of the opinion that it is immoral for the Minister to claim a budget surplus in the first half of the year when service delivery is not as envisaged in TSP under social protection cluster and when Government departments are accumulating huge arrears due to non-release of funds.
- The Committee is concerned with the comparisons made to $US and ZWD figures which have an impression of an impressive performance of the financial sector (Paragraph 57). It is for the same reasons of incomparability of ZWD and USD that the Ministry has rebased inflation.
- The 2019 Budget provided for ZWL$1.017 billion for goods and services. Taking into account inflation and exchange rate developments in the economy, a supplementary budget of ZWL$2.8 billion is being proposed, covering requirements for all ministries through their respective Votes. Of concern however is the uneven distribution of the resources as shown on Annex 1.
- The Committee commends the Minister for setting aside funds to support agriculture well in time before the season starts. With regards to extension of Command Agriculture, it is important for Government to abide by its undertaking that selection of beneficiary farmers and suppliers will be done in a transparent manner and targets farmers with a good track record of honoring obligations.
- The Committee commends Government for finally allowing royalty to be deductible as a tax expense in line with best practice, taking into account that royalties are a direct and significant cost of production and the need to maintain the viability of the mining sector which has become the “goose that lay the golden egg”. This issue has been raised since 2014. According to Ernest and Young Study (2015), countries such as Mozambique, Zambia, Democratic Republic of Congo (DRC) and Tanzania have more than doubled their Foreign Direct Investment (FDI) in the mining sector after adopting low and stable mining royalty regimes.
- The Committee commends Government for introducing public auction of TBs which the Committee has been advocating. Private placements where Government directly engaged private investors to take up Treasury Bills to raise funds has got disadvantages of being inflationary, increases bank debt and that system does not guarantee a defined yield gap.
- Parliament Allocation – The Committee is concerned with the inadequate supplementary allocations of goods and services under the Parliament Vote as indicated in the statement. The Committee recommends that Parliament administers and manages its own budget with resources released at least quarterly rather than the current situation where Parliament is made to queue for funds together with all other Government departments. Untimely release of funds has made Parliament to accumulate huge outstanding payment arrears to service providers who are now shunning Parliament. This has put a serious dent on the dignity of Parliamentarians who are now shunned by hotels and other service providers.
- Allocation to the Ministry of Finance and Economic Development – The Committee is concerned with the 72.91% increase in allocation to the unallocated reserve of the Ministry of Finance from ZW$12.6 m to ZW$929 m. This is on the back of overruns in the unallocated reserve in the first quarter (ZW$210.4 million against a budget of ZW$12.6 m) and this was the case in 2018. Ideally, the Unallocated Reserve should meet unexpected expenditure by ministries and departments like Cyclone Idai. Otherwise under normal situation, ministries should budget all their financial requirements and make draw downs on their budget lines.
- The Ministry should provide clarity on the allocation of import permits for the ring-fenced importation of 100 000 commercial tyres at a lower duty rate of 15% for a period of twelve months, else it becomes a conduit of corruption. The Committee is of the view that importation should just be open while Government makes strides to support the local manufacturer to resume production. Reduction of duty of commercial tyres and reduction of customs duty on the raw materials used in the manufacture of motor vehicle filters will have negligible impact on the cost to consumers and vehicle owners.
- The Committee recommends reduction of excise duty on fuel so as to push transport costs down. The effect will be felt by all consumers and produces including commuters.
- The Committee is recommending that the Minister makes specific pronouncement around streamlining of mining fees and charges. This has been recommended over the years with no action on the ground. Merely calling upon the Mining Sector Cluster on the Ease of Doing Business Initiative to finalise and implement agreed positions relating to streamlining fees and charges levied on mining operations is not good enough without strict deadlines.
- The Committee recommends that Government reviews fees, levies and charges for its services including Government housing, registration of mining claims and motor vehicles, acquisition of driving licence, import licences and passport fees, among others be expedited as and when necessary rather than wait for the budget or budget review. This is also the case with power tariff. In an inflationary environment, delayed review of these charges results in suboptimal fees, charges and tariffs whose cost is borne by the taxpayer. Section 78 of the PFMA empowers Treasury to prescribe or issue instructions or directions to ministries, whether individually or collectively on such matters.
- The Committee recommends a further upward review of the tax free threshold to ZW$1000 given the need to stimulate demand. This is also consistent with the justification given in paragraphs 340-343 on the need to revise charges in line with market developments and exchange rate. All the charges, levies and fees were increased by at least 500%, hence the need to adjust tax free threshold by at least 185% to ZW$1000. This is justifiable by looking at the Total Consumption Poverty Line (TCPL) for an average of five persons per household which stood at $873.00 in March 2019, according to ZIMSTAT. Taxing the already below poverty line income of ZW$700 is pushing the worker further into poverty.
However, Hon Tendai Biti (MDC-A Harare East) was of the different view with regards to Finance minister Ncube’s 2019 supplementary budget, describing it as a fraud and misrepresentation of the true state of the economy. He described the budget as a smokescreen marinated with language, and as a “lipstick and mascara” budget. Some of the issues he raised are as follows:
- Zimbabweans are wallowing in poverty to the extent that 79% are surviving on US$0,35 cents per day.
- Minister said the budget will be increased by $10 billion when, in fact, it speaks of anticipated revenue of $14 billion and an anticipated expenditure of $18 billion.
- In 2019, Parliament approved a budget of US$6 billion and now, the supplementary budget is $14 billion and yet the black market rate is at 1:10 ratio, and what this actually means is that you have reduced the budget from US$6 billion to US$1,4 billion
- The much-hyped myth about the budget surplus is a misnomer because one cannot boast of a surplus using cash accounting, and yet ministries are struggling in debt with no drugs and textbooks adding that one cannot talk of a surplus when there is a deficit of $4 billion, which is 10% of the total budget.
- Minister Ncube has unlawfully converted US$9 billion Treasury Bills (TBs) to $9 billion in breach of section 71 of the Constitution because TBs were never indexed in the Zimbabwe dollar. He said Prof Ncube does not have power to suppress inflation figures or issue a directive to ZimStats (Zimbabwe National Statistical Agency) that they must suspend publishing inflation figures.
On another matter, Hon. Settlement Chikwinya (MDC-A Mbizo) challenged the withdrawal of the adverse report on the basis that there is no Stating Order that permits such withdrawal. This comes after Justice, Legal and Parliamentary Affairs Committee chairperson moved a motion to withdraw the adverse report passed on the Maintenance of Peace and Order Bill. He said the Committee met on the 1st of August and considered the notice of amendments signed by the Minister of Justice, Legal and Parliamentary Affairs and resolved to withdraw the adverse report previously issued as the notice of amendments addresses the Committee’s concerns.
Source: Southern African Parliamentary Support Trust (SAPST)