The Ministry of Finance, which has revised Zimbabwe’s economic growth this year to 6,3%, has increased Intermediated Money Transaction Tax from 5 cents a transaction to 2 cents per dollar transacted in the multi-billion dollar electronic and mobile phone financial market.
In an effort to boost growth amid concerns of a declining economy, Finance Minister Mthuli Ncube, told journalists in Harare today that the country would replace state-crippling treasury bills, engage international finance institutions owed billions of dollars, introduce fuel ports to cater for serious fuel shortages and plug suspected corruption at the Zimbabwe Revenue Authority, which has been dissolved with immediate effect.
He said, “The economy is showing signs of recovery albeit with a number of challenges and risks. Indications are that, the economy will grow by 6.3% against the original Budget projection of 4.5% and 4.8% estimated for 2017. With this projected growth Zimbabwe will join the “6% club” of African countries growing at more than 6% per annum.
“However, the quality of the growth, which is primarily being driven by two sectors of agriculture and mining is obviously not inclusive.”
He said the economy was facing serious problems such as foreign currency and cash shortages, unsustainable high budget and current account deficits, emerging inflationary pressures, slow moving re-engagement, infrastructure deficiencies and process and weak social service delivery.
He said such challenges call for urgent reforms as it cannot be business as usual.
“Bold decisions need to be taken on the reforms front in order to stimulate growth and sustainable development. The financing of the deficit was mainly through domestic borrowing with the use of instruments such as Treasury bills, overdraft with the Central Bank, cash advances from Central Bank, arrears and loans from the private sector.”
Ncube said at the centre of the above challenges, is the unsustainable high budget deficit, which has destabilising implications not only to the financial sector but to the rest of the economy.
“The financing of the deficit was mainly through domestic borrowing with the use of instruments such as Treasury bills, overdraft with the Central Bank, cash advances from Central Bank, arrears and loans from the private sector. Such financing mechanisms is crowding out the private sector, hence constraining production. This also increased money supply in the economy translating into exchange rate misalignment and inflationary pressures now at 4.9%, as at August 2018.”
Ncube noted that similarly, the high deficit has ignited expansion of domestic debt from US$275.8 million in 2012 to current levels of US$9.5 billion against US$7.4 billion external debt, bringing the total public debt to US$16.9 billion.
The overdraft with the Central bank stands at US$2.3 billion, as at end of August 2018, well above the statutory limit of US$762.8 million.
“Consequently, Government will effectively limit the use of the RBZ overdraft facility and curtail RBZ advances to Government in line with Section 11(1) of the Reserve Bank Act [Chapter 22:15], which states that borrowing from the Reserve Bank shall not exceed 20% of the previous year’s Government revenues at any given point.”
CRIPPLING TREASURY BILLS
He said to date, Treasury Bill issuances have increased from US$2.1 billion in 2016 to a cumulative US$7.6 billion, by end of August 2018. In 2014, Treasury Bills to GDP ratio was at 4.4% and has increased sharply to 36.5% by end of August 2018.
“Accordingly, Government in its management of domestic borrowing, is reviewing the use of Treasury bills in support of socio-economic development programmes. Going forward Treasury will seek to finance Government’s vital socio-economic development programmes by use of instruments that “crowd in” the private sector, including public private partnerships or Government guarantees to financial institutions. Such guarantees will only be a contingent liability to Government, unlike Treasury Bills that have a direct and immediate cash flow implication on Government.”
In terms of the foreign debt, he said Zimbabwe is currently reengaging all institutions owed millions of dollars.
WORLD BANK NEGOTIATIONS
“Treasury is accelerating the process of re-engagement with international partners and creditors in order to clear arrears on external debt. Following the roadmap developed in Lima, Treasury is in dialogue with the international financial institutions who are our creditors, seeking to eventually clear the US$2.5 billion owed to the African Development Bank, the World Bank and the European Investment Bank.
“Simultaneously, Treasury is engaging key Paris Club creditors with a view to restructuring US$2.8 billion owed to them. Such debt resolution will help restore the international credit standing of Zimbabwe, resulting in improved access to new external credit lines and investment flows.”
He said negotiations will continue at the World Bank/IMF Annual Meeting in Bali, Indonesia from 10 – 14 October 2018.
Ncube further noted that the government has also reviewed electronic and mobile phone transaction charges.
TAX BASE EXPANSION
“Treasury introduced the Intermediated Money Transfer Tax with effect from 1 January 2003 through the Finance Act 15 of 2002. The tax was set at 5 cents per transaction, which was a specific tax. However due to the increase in informalisation of the economy and huge increase in electronic and mobile phone based financial transactions and RTGS transactions there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system.”
He said in 2018, 1.7 billion transactions went through as compared to 50 million four years ago.
“I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective 1 October 2018. I am therefore directing financial institutions, banks and ZIMRA, working together with telecommunication companies to extend the collection to all electronic financial transactions.”
EFFECTIVENESS IN REVENUE COLLECTION
Ncube said he had dissolved the current Zimbabwe Revenue Authority board with immediate effect in order to enhance governance at ZIMRA.
“The new Board will be announced in due course. In the meantime, ZIMRA senior management will be reporting directly to Treasury … ZIMRA senior management is hereby directed to cease all recruitment of new personnel within ZIMRA until a new Board is in place. This is to allow the new board to have input into critical appointments.
He said the Reserve Bank of Zimbabwe is under pressure to source funds for procuring fuel.
“One long term solution is to create a world-class ‘Regional Fuel Dry Port’ out of the Mabvuku Loading Gantry and Msasa Depot fuel storage facilities. The vision for this inland fuel port will turn it into a vital regional fuel port that will serve neighbouring countries. An additional pipeline could also be built from Beira to the fuel storage facility in order to increase capacity.
“A strategy in this regard will be developed and new investors invited, so that in the end the multiple fuel importers can source their own foreign currency in the market. The concept of a Dry Fuel Port is an important economic development issue. The Ministry of Finance will work with Ministry of Energy and Power Development in order to realise the vision for a Dry Fuel Port for the Region.”