Chinamasa tries to save dwindling coffers, sets new taxes, seek job cuts
FINANCE Minister Patrick Chinamasa has revised downwards the country’s economic growth target to 1,5 percent from 3,2 percent but hopes the tax interventions he introduced will reverse the trend.
In his Mid-Term Policy presented this afternoon, Chinamasa put in place measures that will raise revenue for Government
Presenting the Mid-Term Fiscal Policy statement Chinamasa said that in order to maintain the momentum that ensures fiscal sustainability there was a need for a number of revenue raising measures, together with expenditure rationalisation interventions.
He said overall performance in the first half of the year indicated a modest growth in sectors such as mining, construction, tourism, finances as well as public services.
However, their contribution to the original growth projection of 3.2% is being weighed down by the drought induced underperformance in agriculture that saw a decline in yield in tobacco, maize and other crops.
As a result of the underperformance he said Treasury was now anticipating that revenue will go down to $3, 6 billion from the forecasted $3, 99 billion while expenditure has been reduced to $4 billion from $4, 11 billion.
This leaves government with a $399.6million shortfall which he said was going to be funded by both internal and external keeping in mind the pressures on the local economy that emanate from domestic borrowing.
Chinamasa also highlighted that Treasury would be pursuing Budget cutbacks that would see $155million being cut from projects that have not commenced and from items such as motor vehicles and furniture.
Chinamasa said the economic growth is to be driven according to clusters as premised in ZimAsset economic blueprint.
“Six months into the year, progress in the implementation of the 2015 National Budget as well as performance of the economy, has been mixed, with positive strides in some areas and deviations in others,” he said.
He said the deceleration in overall economic growth signifies the contribution of agriculture which did not perform to expectations, and the need for drought proofing the economy given the adverse effects of climate changes.
“Consequently, agriculture output is projected to decline by about 8.2% in 2015,” he said. In terms of tax measures, Chinamasa said they seek to enhance industry productivity, curtail the influx of non-essential imports, thereby reducing the current account deficit.
The Finance chief said as a result of In view of the improved capacity of the tax administration in VAT collection that effective 1 September, Treasury would introduce VAT on short-term insurance in a move that will see the government raise revenues from property and casualty insurance which is worth $215million according to an IPEC report.
He said the measures will also provide tax relief to the mining sector, enhance revenue collection, as well as strengthen the tax administration system.
As a consequence Chinamasa said Treasury will hike customs duties and surtax on select imports in a move that is expect to reduce the trade deficit as well as a measure to protect local industries from cheaper imports.
He also said that businesses operated by not-for-profit organisation will be taxed effective January next year but Tithes and offerings will however be tax exempt. He added that charitable and educational institutions of a public character engaged in profit oriented businesses will be exempt from tax to the extent that they are limited by guarantee in terms of the Companies Act.
Importation of second hand clothes and shoes for resale has been banned effective September 1 2015 and Chinamasa said future imports are liable for forfeiture and destruction.
Chinamasa also said the tax amnesty period which lapsed on June 30 will be extended by 4 months to end of October to encourage people and businesses to pay their tax dues.
Chinamasa also reduced the royalty rate for small scale gold miners from 3% to 1% saying the move is meant to curtail leakages and improve production.
Basic goods such as flour and sugar have been removed from travellers rebate effective August 1, 2015, as he moves to protect industry.
According to Chinamasa, exports were up 0.4% to $1.3 bln in first half of the year while imports increased 2% to $3.1 bln as Zimbabwe continued to rely on imports. The country trade deficit now stands at $1.8billion for the six months to June.
Meanwhile, tourism sector is expected to grow by 5% this year while the transport and communication sector is projected to register a positive growth of 3%, against 0.9% of 2014.
Meanwhile, a civil service retrenchment is expected as Chinamasa said government will be looking at measure to reduce the wage bill from over 80% of expenditure to 40%.
Chinamasa said the reduction of the wage bill is a key government target under the International Monetary Fund-monitored Staff Monitored Program (SMP) as it seeks to reform which is key to unlocking foreign direct investment.
He said civil service commission has already completed the physical headcount for all civil servants.
On debt, Chinamasa said government entities should exercise restraint in borrowings saying the stock of government debt had risen to $8.4 billion with external debt accounting for $6.7 billion, about 40 percent of the gross domestic product. -FinX
Mid-Term Policy analysis by BancABC
1) ECONOMIC OVERVIEW
The 2015 National Budget projected moderate growth of 3.2%, and average annual inflation of 0.2% driven by :-
* Stable macro-economic environment;
* Policy clarity;
* Mobilisation of requisite resources in support of projects and programmes in both the public and the private sectors;
* policy measures to enhance the competitiveness of productive sectors;
* Continued re-engagement with creditors, including implementation of the Staff Monitored Programme to resolve the external debt overhang and unlock new financing;
* Normal rainfall for the 2014/15 agriculture season.
The government has however revised down the GDP growth to 1.5%.
Inflation in H1 2015 remained negative, reaching -2.8% by end of June, while monthly inflation gained 0.05 points to -0.14% from the May rate of -0.19%.
Major drivers of price declines were in food and non-alcoholic beverages; clothing and footwear; housing, water, electricity, gas and other fuels; communication; recreation and culture; restaurants and hotels; and miscellaneous goods and services.
Government is forecasting prices to further decline with the average annual inflation for 2015 projections now pegged at -2% from the initial projection of -1%.
Exports receipts grew by 0.4% in H1 2015 amounting to US$1.23 billion against the US$1.22 billion recorded in H1 2014.
Imports for H1 2015 stood at US$3.1 billion, up 2% from US$3 billion in H1 2014.
The current account deficit for 2015 is projected at US$3.1 billion, and will be financed mainly through private sector borrowing.
Zimbabwe’s public and publicly guaranteed debt stood at US$8.4 billion as at end June 2015 comprising of US$6.7 billion external debt (about 47% of GDP), and domestic debt of US$1.7 billion.
Overall Government expenditure in H1 2015 amounted to US$2.07 billion, with employment costs contributing US$1.54 billion.
Government is planning to gradually bring down the share of the wage bill in the Budget from over 75% to less than 40%.
The reserve bank was capitalized to the tune of US$110 million using long dated debt instruments.
The ratio of non-performing loans to total loans ratio remained high at 14.52% as at end of June 2015.
Banking sector deposits increased by 14.2% from US$4.9 billion in June 2014 to US$5.6 billion as at end June 2015.
Banking sector loans and advances grew from US$3.8 billion in June 2014 to US$4 billion by June 2015.
All Government and parastatals bonds to be listed on the ZSE to source long term funding for infrastructural projects.
The Government supported the purchase of mining equipment for Hwange Colliery, by guaranteeing the Export–Import Bank of India’s US$13.03 million line of credit to the company that was signed on 4 December 2014.
Equipment worth US$12.7 million disbursed under this facility was commissioned on 19 June 2015 at Hwange Colliery.
Mineral commodity prices are projected to continue on the downward trend in 2015, posing potential risks for export earnings from such minerals as gold and platinum.
The commercial dairy herd grew by 7% to 28 000 from 26 000 at the end of 2014.
The dairy herd is projected to have further increase by 22% at the end of 2015, benefitting from importation of dairy heifers under the Dairy Revitalisation Programme.
During the period January–May 2015, total milk production stood at 22.75 million litres, up from 22.25 million litres in the same period in 2014.
Annual milk production is expected to increase from 55.5 million litres produced in 2014 to 67.9 million litres in 2015.
Major ICT projects during the first half of the year include the NetOne Network Expansion Phase II and the TelOne Fibre Optic project.
2) REVISED BUDGET Initial Estimates Revised Estimates Total Revenue 3.990 3.600 Total Expenditure 4.120 4.000 Employee costs 3.320 3.330 Other recurrent operations 0.384 0.316 CAPEX 0.341 0.279 Budget deficit -0.125 -0.399 Recurrent/Total Expenses 90% 91%
Revenue is expected to slow down with the shrinking of tax receipts
Recurrent expenditure will however remain at expected levels, thereby squeezing allocations towards capital expenditure.
3) SPECIFIC POLICY CHANGES
Government is introducing a specific customs duty of US$0.50 per litre of carbonated soft drinks.
Customs Duty on imported sugar has been review from 0% to 10% plus US$100 per ton. Furthermore, in order to protect the local sugar industry, issuance of Import Licences will only be in consultation with industry representatives, taking into account the prevailing market conditions.
Government to remove groceries that include maize-meal, meat, sugar and flour, among others, from the Travellers Rebate.
Importation of second hand clothing and shoes banned.
4) BUDGET IMPLICATIONS FOR SELECTED STOCKS
The government’s burden to import 700k mt of maize may allow them to be more liberal with the grain movements and as before, benefit milling companies such as National Foods
In the same light the farm input program is expected to receive $28m of which $7,5m is allocated to seed. Seedco being the more consistent supplier over the last 2-3 years, will most likely enjoy a significant share of this.
The ban of second hand clothes is meant to protect the local clothing companies (Truworths & Edgars included). We believe if they are able to provide the very low-end with decent clothing at reasonable prices, they stand to witness a surge in their revenues.
The proposed electricity tariff reduction from 12,76c /kWh to match the regional levels should lower the cost of production for local manufacturers of both food and non-food items. In addition, the mining sector, whose major cost of production is energy, stands to also benefit from this tariff reduction. Such companies include Delta, Innscor, Dairibord, Bindura Nickel, Rio Zim, Hwange Colliery and other manufacturers.
Furthermore, continued government support of Hwange Colliery’s retooling exercise has and will continue to help them increase output and profitability.
Re-introduction of duties on various selected food items protects the food processing companies such as Dairibord, Innscor, National Foods, Colcom, Hippo and Delta
There however is a downside to this. There is likely to be a slight cost push aspect to inflation in the short term for these basic goods. Unless they are inelastic or very basic in nature, we should witness a slight drop in sales volumes of the retail companies. However, as consumers adjust we should expect their sales to stabilise . OK Zim, TM (Meikles) and SPAR (Innscor).
The endorsement of ZAMCO as a clean-up strategy for the banking sector as well as the interbank guarantee facility has and is expected to continue enhancing the stability of the sector. NPLs are therefore expected to continue coming off. This should help local banks (Barclays, CBZH, FBCH, NMBZ) improve their asset quality and profitability.
The support of the national dairy herd is expected to continue increasing milk intake, which will benefit the dairy value chain companies like Dairibord.