By Prince Kurupati
The recently appointed Finance and Economic Development minister in Zimbabwe, Mthuli Ncube on 22 November 2018 presented his 2019 budget. Many Zimbabweans eagerly awaited the presentation of the 2019 budget as they had pinned their hopes on it with the expectation that it would bring relief to their suffering. However, from the theme of the budget, it was clear that the suffering majority had nothing to celebrate (at least in the short term) as the budget focused on austerity measures.
Presenting the budget albeit in bizarre circumstances as the main opposition party members had been ejected from parliament, the finance minister Mthuli Ncube started his presentation by reading the theme of the budget, “Austerity for Prosperity.” To reinforce the theme, Mthuli Ncube also read out one of philosopher Immanuel Kant’s quote, “We are not rich by what we possess, but by what we can do without.”
Considering Zimbabwe’s current economic standing, it’s only right that the finance minister took the all-important decision to introduce austerity measures. Just to put this into perspective, Zimbabwe in the past few years has been spending over 80 percent of its budget on paying civil servants salaries. As such there was no money left to finance infrastructure as well as economic development initiatives. It is against this background, that many economists and industrialists argued that austerity measures were the only way forward for Zimbabwe.
To the credit of the finance minister, he indeed heed the call to make implementing austerity measures the focus of his budget. However, the criticism now levelled against him is that his austerity measures are targeting only one section of the population i.e. the citizens. The measures proposed by Mthuli Ncube only lets the citizens bear the brunt while giving the governments top officials a free pass. Below, we put this into perspective.
Maintaining the 1:1 Rate between the Bond and the USD
Zimbabwe does not have an official currency but some few years back, it introduced the bond note as a medium of exchange to be used within the confines of the country only. In addition to this, the bond note was also introduced as an export incentive meaning that those people who brought in foreign currency into the country through remittances were to be given extra funds in the form of the bond note. At its inception, the Reserve Bank Governor said that the bond note was at par with the USD.
However, despite it not being the official currency, the bond note has ‘effectively’ operated as the official currency in Zimbabwe thus it is susceptible to volatility against other currencies. In recent times, the bond note has been falling sharply in value against the US and also the Rand (other currencies which are part of Zimbabwe’s multicurrency system) on the black market exchange where most people and businesses get their forex.
The fall in the value of the bond note led to massive distress on the general population as the prices of basic commodities rose sharply in spite of the salaries remaining stagnate. As such, the belief was that the finance minister in his budget presentation will either put the bond note out of circulation or come up with another solution to the farcical 1:1 bond note to USD rate.
The minister did neither. Many economists and the general public fear that the inaction of the minister to address the farcical 1:1 bond note to USD rate is going to lead to another wave of price increases.
The Sick Left in the Open
After the first wave of the price increases, one sector, in particular, i.e. the pharmaceutical sector decided to take the radical measure of selling their products in the USD only. Justifying their actions, pharmaceutical companies said that they were sourcing their medicinal products from beyond the country’s borders and as such, they had to use forex. As a result, they had to sell their products in forex. By retaining the 1:1 rate, Mthuli Ncube has indirectly given leeway to pharmaceutical companies to continue charging their products in foreign currency. As the majority of Zimbabweans are paid in bond note, they will not be able to buy the forex charged medicines when they fall sick. This challenge is compounded by the fact that changing currencies is now illegal in Zimbabwe.
Civil Servants Put In a Corner
In his budget, the finance minister said that with effect from 1 January 2019, he will be cutting the civil servants’ salaries by 5 percent. However, this measure only applies to higher level civil servants meaning that the majority will be unaffected. Great news indeed for lower level civil servants but on the other hand, it’s not exactly great news, as the other propositions by the finance minister put them in jeopardy. Most notably, the 13th cheque will now be paid according to the basic salary only. In essence, this means the annual bonus has been cut as allowances will not be factored.
Business Opportunities Cut For the General Populace
Zimbabwe has one of the highest unemployment rates in the world with over 90 percent of the population unemployed. The majority of the unemployed have been able to sustain themselves through cross-border trading. However, business for cross-border traders is now tricky (and potentially unprofitable) as cross-border traders have to pay duty in foreign currency on a number of selected goods including most foodstuffs as well as cars. Even for those who do their informal business locally, business is set to dwindle as the 2 percent transactions tax was retained. The 2 percent transactions tax sees the government taking 2 cents from every dollar that is transferred electronically.