Treasury loses US$4,5 billion to monetary distortions- World Bank

TREASURY could have lost over US$4,5 billion between 2020 and 2023 due to monetary distortions, which justify Government’s recent tightening of monetary policy and roll out of other key reforms aimed at restoring macro-economic stability, the World Bank has said.

The multilateral lending institution has thrown its full weight behind Government’s fiscal consolidation efforts and has made suggestions on policy options to improve expenditure and revenue mobilisation to create fiscal space, improve efficiency and strengthen equity considerations.

This is expected to help move Zimbabwe towards a more sustainable medium-term fiscal pathway, stabilise the macroeconomic environment and support sustainable economic growth and job creation, it said.

To enhance the gains achieved so far, the World Bank has urged the Treasury to strengthen the reform process to move the country towards a sustainable medium-term fiscal pathway.

The suggestions are informed by the new Public Finance Review (PFR) paper titled: “Anchoring Macroeconomic Stability through Fiscal Policy” released by the World Bank this week, which considered the performance of Zimbabwe’s public finances between 2019 and 2023.

“The PFR emphasises the World Bank’s commitment to providing timely and responsive support to the Government of Zimbabwe and is a testament to our strong and ongoing partnership,” World Bank country manager, Eneida Fernandes, said.
“This comprehensive analysis of public finance will guide our efforts to assist the Government in improving domestic revenue mobilisation, enhancing efficiency and ensuring pro-poor outcomes.”

The PFR recommends several measures to create fiscal space and return Zimbabwe’s fiscal accounts to a prudent trajectory.
The report further highlights that stabilising prices and eliminating exchange rate distortions can significantly and swiftly boost Government revenue.

“Already, the World Bank’s analysis indicates that Zimbabwe’s Treasury lost over US$4,5 billion between 2020 and 2023 due to monetary distortions,” said the Bank in a press statement.

“Enhancing price stability could help recover inflation-related tax losses promptly. Potential reforms to increase tax revenue efficiently and equitably include streamlining corporate tax incentives, strengthening mining, property and wealth taxation, aligning health excise taxes in line with international standards, and improving tax administration using digital technologies,” said the bank.

It also called for improvement in the efficiency of public spending as essential for supporting fiscal consolidation and achieving long-term sustainable and inclusive growth.

“There is potential to improve the Government’s allocative efficiency to improve value-for-money in areas such as health care and capital investments.

“Improvements in procurement systems, including the use of e-procurement, also present significant opportunities for efficiency savings,” said the World Bank.

“Efficiency in public services administration is also key, as the Government of Zimbabwe’s jobs evaluation report suggests there are opportunities to streamline the civil service.

“The progressivity of expenditure policy can also be improved through more and better targeted spending on social protection. The operationalisation of a national ‘social registry’ could help improve targeting of Zimbabwe’s current social protection systems and help improve climate resilience.”

The PFR shows that fiscal policy can be a critical anchor for macro-economic stability that can ensure a credible and efficient national budget and assist a stable and competitive currency.

“Jointly, this would lead to higher growth, major poverty reduction, and a major step toward achieving Zimbabwe’s development objectives,” said the Bank.-chroncile