Austerity measures back on table as Govt seeks to balance books

The Government has outlined a raft of measures including increased taxation, asset sales and the issuance of new securities in order to plug off the projected 2025 budget deficit.

In 2025, Government expects to generate ZiG103,17 billion in revenue, while expenditure is estimated at ZiG111,68 billion.

This will result in a budget deficit of ZiG8,5 billion (1,5 percent of GDP), according to the recently released 2025 Budget Strategy Paper.

To bridge this gap, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube, said the Government will accelerate joint ventures with state-owned enterprises (SOEs) and explore the sale of non-core assets.

Furthermore, Treasury plans to issue new securities such as green bonds, social bonds, diaspora bonds and debt swaps on both the Zimbabwe Stock Exchange and the Victoria Falls Stock Exchange.

ZSE chief executive officer, Justin Bgoni, said the local market is ready for such instruments and that the local bourse has already “started working with them (Government) on it”.

“There is trading happening at the moment Over The Counter. We need a more transparent system on Exchange,” Bgoni said.

On the revenue front, the Government will introduce measures to broaden the tax base, including automatic registration of small and medium enterprises for tax purposes and the inclusion of cross-border online transactions in the tax net.

Additionally, tax incentives, particularly in the mining sector, will be streamlined to optimise revenue collection, reads the 2025 National Budget Strategy Paper in part.

The 2025 taxation proposals will focus on further streamlining of tax expenditures, in particular, for the extractive sectors, where Government has already excluded the mining sector from Special Economic Zone incentives, in order to ensure a fair share from the country’s finite resources, as well as enhance optimal contribution to the fiscus.

The Government has also announced plans to accelerate the shift to the local currency, with more taxes to be paid exclusively in Zimbabwe dollars.

“Already, customs duties are now payable in local currency. Going forward, and in line with the de-dollarisation roadmap, other taxes will also be paid exclusively in local currency, including payment for Government services,” reads the 2025 National Budget Strategy Paper in part.

While these measures are aimed at addressing the budget deficit, economists have cautioned that their success will depend on the Government’s ability to implement them effectively and attract investor confidence.

However, financial analyst, Malone Gwadu, cautioned that while the Government’s approach is proactive, challenges remain.

“I think it’s a proactive approach to ameliorate excesses around budget deficit, which can be inflationary in nature and other bad economics consequences,” he said.

Gwadu highlighted that the country’s core productive sectors, particularly agriculture and mining, have been severely impacted by external factors such as El Niño and global commodity price fluctuations.

“This inevitably affects budget performance and orientation,” he added.

The analyst commended the Government’s push for joint ventures with SOEs as a noble initiative to enhance their performance and reduce budget dependency. However, he emphasised the need for careful consideration of potential buy-ins.

“Increasing taxation on the other hand may not be the best approach but rather broadening the tax base through widening the reach of the tax net, particularly the informal sector,” Gwadu said.

He noted that the informal sector is a significant contributor to the economy but remains largely untapped for tax revenue.

The financial expert also expressed support for innovative financing models but stressed the importance of careful structuring and ringfencing of funds.

“Such innovative financing models are a good initiative as long as they are ringfenced to meet specific demands and address the specific needs of the budget, preferable productive ones and self-liquidating ones,” he said.

Gwadu warned that the country’s current debt overhang of around US$21 billion requires careful management.

“This will aid in controlling the already burdensome debt overhang currently bedevilling us as a country,” he concluded.

However, another financial analyst Rufaro Hozheri, expressed reservations about the Government’s proposed measures to address the budget deficit. He argued that the Government’s focus on increasing revenue through taxation might not be the best.

“And for Government, where more than 90 percent of its revenue comes from taxes, the moment you talk about increasing the income, you are talking about taxing more people,” he said.

He added that Zimbabweans are already overburdened with taxes and that introducing new taxes would be counterproductive.

The financial analyst further opined against the Government’s proposal to sell off assets to finance the budget deficit.

“Selling off assets to just finance a budget in a single fiscal year, to be quite honest, might not be the best thing to do,” he stated.

Hozheri also raised concerns about the stability of the Zimbabwe Gold (ZiG), noting the significant depreciation of the local currency on the parallel market.

“The numbers that we are talking about, if they are ZIG numbers, there’s obviously going to be probably a deficit which is bigger than the 1,5 percent which is being projected,” he warned.

The analyst emphasised the need for the Government to focus on expenditure cuts rather than increasing revenue through taxation.

Walter Mandeya, an analyst with Trigrams Investment said, “It is always encouraging to see Treasury planning ahead and taking proactive measures to manage Government expenditure as this can only lead to ‘best-in-class’ outcomes.

However, caution should be taken with tax increases as these tend to disproportionately burden already compliant taxpayer and instead Government should first exhaust measures to continue widening the tax net.

For example, Zimra recently reported that almost 66 000 new taxpayers registered on their new revenue system in the first half of 2024. This 85 percent increase in the registered taxpayers represents potential increased tax revenues that if well managed can plug the 1,5 percent projected 2025 budget deficit without the need for increased taxes.

He went on to say, “On asset sales, there are completely different considerations needed when considering budget objectives.

The takeover of Government’s shareholding in various SOEs by Mutapa Investment Fund presents some interesting possibilities in how these state assets can be disposed of or otherwise restructured to contribute positively to the national purse.

Our strongly held view however remains that asset sales should fund asset acquisitions be it economically or socially important assets.”

On the plans to list state issued debt instruments and other securities, Walter Mandeya said; “Zimbabwe’s capital markets have demonstrated extraordinary resilience in the face of serious challenges.

Therefore, the state’s intention to use local markets to support both short and long term financing requirements represents a significant shift in thinking by the authorities on how to harness the country’s savings and financial expertise.

Increasing the range of products citizens can invest in using strong and stable channels like the stock exchanges and capital markets will lead to positive feedback loops that will position the country favourably as an attractive investment destination.

That said, Treasury needs to come up with stronger well considered legislative protections for investors and we will give our call for the Mosi-Oa-Tunya Gold Coins to be protected by an Act of Parliament as an example.”-ebsinessweekl