Cabinet okays Mthuli’s austerity and reform plan

Finance Minister Mthuli Ncube

FINANCE Minister Mthuli Ncube will this week announce details of a transitional plan to stabilise the economy by targeting government expenditure, the civil service, state enterprises and tax reform.

The former African Development Bank vice president and chief economist has said he prefers a ‘fiscal shock’ to arrest the country’s economic slide.

This week, Ncube forecast the economy to grow by 6.3% this year, from an initial official projection of 4.5%, but hastened to caution that prospects remained under threat from a foreign currency crisis and an attendant inflation pressures as well as gaping budget and trade deficits.

Government expenditure is particularly worrisome, after a first half budget deficit of $1.34 billion exceeded the target by 400%. Domestic borrowing crept up towards $10 billion in the first half.

A Cabinet meeting held on Tuesday approved Ncube’s Transitional Stabilisation Programme (TSP), which will run from October 2018 to December 2020. Thereafter, government will adopt five-year economic programmes.

“The Transitional Stabilisation Programme’s main thrust is to ensure the stabilisation of the macro-economic environment, including the financial sector; introduction of necessary policy and institutional reforms to facilitate private sector-led economic growth,” reads a Cabinet statement.

Key aspects of the reform plan include:

  • Rationalisation of the civil service to reduce unsustainable public sector wage bill
  • Public enterprises sector reform
  • Strengthening fiscal responsibility and management of government expenditure, to shift resources from consumption to production
  • Facilitating innovation in the design and administration of taxes, including simplified tax structures for micro, small and medium enterprises.
  • Instituting measures to strengthen the balance of payments position, enhance exports, currency competitiveness and capital inflows and reduce the import bill
  • Focus on enabling the growth and development of productive sectors
  • Aggressive rebranding and marketing of Zimbabwe to facilitate tourism, trade and investment.
  • Development of electronic platforms for government departments to enhance efficiency and curb corruption.
  • Targeting eradication of corruption.
  • Focus on high-impact, quick-win projects.

Government this week imposed a 2% electronic transaction tax and announced plans to separate foreign currency deposits and local electronic balances, effectively restoring a local currency. The outrage triggered by the policy announcements has raised stakes for government, which now has to demonstrate that it will also take some of the bitter reform prescriptions.

Tuesday’s Cabinet meeting also deliberated on a law which will establish the Zimbabwe Investment and Development Agency (ZIDA), modelled along the Rwanda Development Board.

All investment services will fall under ZIDA, which will merge the Zimbabwe Investment Authority, the Special Economic Zones Authority and the Joint Venture Unit.