THE 2023 National Budget was unveiled by the Minister of Finance and Economic Development Professor Mthuli Ncube on November 24, under the theme, ‘Accelerating Economic Transformation’.
The 2023 National Budget is the third annual fiscal plan the government is using to implement the National Development Strategy 1: 2021-2025. The National Budget is anchored on an economic growth projection of 3,8% in 2023 slightly down from the estimated 4% in 2022.
Under the NDS 1, the economic growth target for 2022 is 5,5% and it is 5,2% for 2023.
Notwithstanding the positive economic growth, that economic growth has not been fast and inclusive enough to absorb the growing labour force and to have a significant poverty reduction impact.
Zimbabwe continues to face huge labour market challenges related to poor job quality and high levels of working poverty. This situation is directly related to the high prevalence of informal and vulnerable employment as well as the chronic high inflationary environment.
The percentage of informal employment has continued to increase from 75,6% in 2019 to 88% as at Q2 2022. High levels of informality limit the capacity of the state to sustainably mobilise domestic resources and also effectively deploy micro and macroeconomic policies such as the National Budget to promote decent work.
The lack of sufficient full, productive and decent jobs is complicating efforts to end poverty.
The National Budget also comes at a time when the economy has been experiencing some measure of macroeconomic stability. This stability has been shown by the significant fall in the monthly inflation figures from 30,7% in June 2022 to 3,2% in October 2022, while annual inflation has decelerated from 285% in August 2022 to 268,8% in October 2022.
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The annual inflation rate, however, still remains quite high and this has disproportionately affected the working population the majority of who are predominantly employed in the informal economy through an erosion of their real incomes.
The proportion of the working poor has increased markedly with average salaries lagging far behind the poverty lines. The average minimum wage in Zimbabwe as at November 2022 was about ZW$98 000 (US$155 at the then prevailing official rate and US$131 using the then average black-market rate).
In South Africa, according to the Quarterly Employment Statistics (QES) for June 2022, the average monthly earnings (including bonuses and overtime payments) was R24 578 (US$1 586) in May 2022. In the financial intermediation, insurance, real estate and business services industry it is R26 701 (US$1 723). This creates economic incentives for Zimbabweans to seek greener pastures outside the country.
While there has been improved allocation and spending towards critical sectors of the economy such as education, health care and infrastructure, these improvements are still below regional and international benchmarks. Primary and secondary education got the highest vote with an allocation of ZW$631 billion (auction rate at US$1:ZW$654,86), which constitutes about 14% of total expenditures.
This is an improvement from the estimated 13,4% in 2022, but it is still below the Dakar Declaration target of 20%. The ministry of Health and Child Care got an allocation of about ZW$474 billion, which constitutes about 10,5% of the total expenditures, which is below the Abuja Declaration target of 15%.
This translates to per capita allocation of US$48. Government also spends a relatively small share of its gross domestic product (GDP) on health care projected at 2,2% in 2022.
The inadequate public financing of health has resulted in an overreliance on out-of-pocket and external financing which is highly unsustainable.
In general, social protection spending remains grossly inadequate to have a significant effect on poverty and vulnerability reduction impact. According to ILO statistics, social protection coverage in Zimbabwe is 16%, which is way below the global average rate of 47%.
Social protection was allocated about ZW$50,4 billion, which constitutes only 1,1% of total public expenditure and 0,2% of GDP down from 0,9% of GDP in 2022. Social protection allocation remains below the African Union (AU) Social Policy for Africa (2008) benchmark of at least 4,5% of GDP.
With respect to water and sanitation, the country must spend at least 1,5% of GDP, according to the eThekwini Declaration (2008) and the Sharm El-Sheik Commitment (2008).
However, the country is projected to spend only 0,1% of GDP in 2023, down from an estimated 0,3% in 2022. Providing water and sanitation in schools is key to keeping girls and children in school. Poor and inadequate water and sanitation is a leading cause of poverty, morbidity, and mortality.
On a positive development infrastructure spending for 2023 is projected at ZW$1,1 trillion which constitutes 24% of the total expenditures and 5,3% of GDP up from 4,8% of GDP in 2022.
The reduction in the Intermediated Money Transfer Tax (IMTT) on domestic foreign currency transfers from 4% to 2% is a welcome development.
The restoration of the Value Added Tax (VAT) to its pre-Covid-19 pandemic level of 15 from 14,5% will result in an increase in the cost of some goods and services by about 3,4%.
The excise duty on energy drinks which was introduced this year at a rate of US$0,05/litre, with a view to encourage responsible consumption of such products, as well as mobilise additional revenue to the Fiscus has been reviewed upwards to US$0,10 per litre, with effect from 1 January 2023. This is important and in line with regional and global good practices, there is however need to extent this to other sugary beverages.
Additional funds generated from these must be ring-fenced and deployed towards the treatment and support of cancer, diabetes and hypertension patients through the Non-Communicable Diseases Fund. These additional funds and the fact that the majority of Zimbabweans are either uninsured and/or underinsured medically, should provide a strong foundation for the introduction of a national health insurance scheme to ensure universal health coverage.
The tax-free threshold on local currency remuneration has been reviewed from ZW$600 000 per annum (or ZW$50 000 per month) to ZW$900 000 per annum (or ZW$75 000). The tax bands have will end at ZW$12 million, above which tax will be levied at a rate of 40%.
The review of the tax-free threshold to ZW$75 000 per month represents a 50% increase. This increase is way below the October 2022 annual inflation rate of 268,8%, implying that in real terms there is actually a decrease. The revised tax-free threshold is also below the average minimum wage of about ZW$98 000 as at November 2022.
Importantly, the revised tax-free threshold is grossly inadequate given the fact that the October 2022 Food Poverty Line (FPL) for an average family of five is ZW$107 273 while the Poverty Datum Line (PDL) for an average household of five is ZW$140 720.35.
Promoting inclusive and sustainable economic growth, employment and decent work for all, remains one of the most daunting challenges facing the country. The National Budget can enhance the quality/pattern of economic growth in the country through facilitating structural transformation, technological upgrading, and diversification by shifting resources from low value-added activities to those with higher value added.
In the short to medium term, the economy will continue to face structural challenges that include: erratic growth pattern; high levels of informality; a huge competitiveness gap; poor infrastructure; weak institutions; challenging doing business environment; high levels of public indebtedness; high inequalities; and high levels of poverty. In particular, the 2023 elections present a downside risk for the economy.
Chitambara is an author, development economist, policy advisor, and bible scholar who is based in Harare. These weekly New Perspectives articles published in the Zimbabwe Independent and co-ordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society (ZES) and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ). [email protected] and mobile No. +263 772 382 852.
