Mthuli budget: Experts worry over reduced social expenditure, growth financing

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By Alois Vinga

ECONOMISTS have expressed concerns over reduced social expenditure and lack of clarity on the sources of finance to fund the proposed 2021 budget growth projections.

This comes soon after Finance Minister, Mthuli Ncube $421.6 billion budget delivered Thursday projected that the economy in the forthcoming year was expected to grow by 7.4 %.

But speaking to Friday, economist Persistence Gwanyanya said while there were some positives in the blueprint, there was no clarity on sources of financing which will boost economic growth.

“There is no link between the projected to what will drive it. Stability is just there as a foundation, but it cannot form a springboard to accelerate the desired growth single-handedly. Currently, indications are that the economy does not have enough investment to match the growth projections,” he said.

Gwanyanya said the most of the country’s problems were being caused lack of a diversified economy after decades of over reliance on agriculture and mining.

“So, given the circumstances, focus must be directed towards manufacturing sector.

“However, the challenge is that the investment ratio currently stands at a ratio 10-15 % of the Gross Domestic Product which falls far short of internationally desired investment levels,” he said.

Gwanyanya said the current rate of informalisation being experienced could only end when growth of the manufacturing sector is accelerated.

“The budget is failing to outline exactly how the growth will be funded and as a result, it appears there will be more reliance on domestic sources of capital like taxation of the citizens,” added Gwanyanya.

Economist Prosper Chitambara said while there were positives like mainstreaming, the employment creation through setting up of targets for employment creation, increase on sin taxes on alcohol and cigarettes  as well as compensating bank account holders who had little amounts of money at the time of adopting the Zim-dollar, grey areas existed.

“Social spending remained lower than international best practices specifically the total allocated to the Health Sector constituting around 13 % of the total budget falls short of the 15 % stipulated under the Abuja Declaration.

“The amount allotted to education at about 13 % of the budget also falls short of 20 % stipulated best practice,” he said.

He said water and sanitation at the current 0.2 % also fell below international best practice.

Confederation of Zimbabwe Retailers president, Denford Mutashu described the blueprint as a mixed bag which failed to address some of the issues affecting the flow of business.

“It’s a mixed bag. That health got the biggest chunk was expected owing to the continued fight against Covid-19.

“The issue concerning Value Added Tax  on rice was not attempted, surprisingly, yet it is a matter bedevilling business as ZIMRA piles pressure demanding payments backdated to 2017 despite businesses having not collected anything due to policy confusion on the matter,” he said.

He said the ramping up of the tax-free threshold by the minister was an attempt to stimulate aggregate demand which is depressed due to inflation hovering above 450%.

Mutashu maintained that inflation targets of 135% in 2021 could only be realised on the backdrop of production capacity increases.

“The country should therefore focus on poverty eradication, realistic employment creation targets, import substitution anchored on a robust export strategy,” he said.