THE Russia-Ukraine war and its primary ripple effects on international trade and cooperation is one of the major sources of volatility and uncertainty, particularly for developing country economies like Zimbabwe.
This war poses catastrophic long-term impacts on global economic activity as it is compounding economic imbalances, for instance, unsustainable public debt that was initially worsened by the Covid-19 pandemic.
Many emerging and developing market economies are grappling with unprecedented debt levels with data showing many at risk of defaulting.
As their debt ratios breach 100% of the gross national product (GDP), debt servicing costs are now gobbling the larger chunk of government budgets thus crowding-out critical public services, safety nets, private sector support, and infrastructure development.
With a clear uncertain future for the global economy, it is looking gloomy for Zimbabwe, a country that heavily relies on both foreign-produced goods and primary commodities, which are too susceptible to severe global fluctuations.
This shows that the domestic economy is inadequately insulated from global economic fluctuations. Since 2019, the nation has struggled to contain excessive currency fragility and is experiencing a sustained increase in general prices that continues to plunge the majority of the population into poverty.
For instance, official statistics show the price of basics mounting by 255% in the last 12 months through November 2022. The World Bank also estimates that 40% of Zimbabwe’s population is living in extreme poverty.
All this is attributable to government officials’ economic and financial mismanagement,which is being driven by flip-flopping policy making, fiscal indiscipline, illicit financial flows (IFFs), corruption, greed, and impunity among others.
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The obtaining dire socio-economic situation is likely to worsen as the nation gears for a general election that is constitutionally expected to be held on or before August 2023.
Generally, in a developing nation set-up, elections pose greater economic risks. The election cycles are largely characterised by unsustainable fiscal spending, political violence, police brutality, unwarranted civil arrests, and human and property rights abuses.
Also, the election risk emanates from the politics of public spending, that is to say, election years are associated by increases in government consumption,which lead to higher fiscal deficits.
A granular analysis of the 2023 budget statement shows that the government is hyper focused on upcoming elections, not the economy.
A projected 136,8% jump in budget expenditure ceiling to ZW$4,5 trillion (auction rate at US$1:ZW$654,86) in 2023 from 2022’s ZW$1,9 trillion can attest to this assertion.
To me, if the national output (GDP) growth is expected to decelerate further in 2023, what then is informing the Treasury’s projected jaw-dropping spike in revenue collections next year?
From this standpoint, it is evident that fiscal authorities are anticipating a carryover of the existing problems of massive ZWL depreciation and chronic inflation —high inflation means high collections for the Zimbabwe Revenue Authority (Zimra).
To further show that 2023 budget is laser-focused on elections, authorities are planning to increase household agricultural support for the 2022/23 season under Pfumvudza Scheme to 3,5 million from 2,3 million, who participated in the previous season.
This ambitious plan comes at a time the cost of fertilisers and some criticalfarm inputs have burgeoned significantly, fuelled by the Russia-Ukraine war.
A question for objective inquiry is, whether the plan for doubling beneficiaries of 2023 Pfumvudza Scheme,is coincidental or is just a deliberate move by politicians to appease the ruling party’s rural strongholds.
These state-funded farm inputs are reportedly being distributed on a partisan basis. But, in an ideal set-up, productive government subsidies should be allocated and distributed to all intended beneficiaries transparently to curb abuse and waste of taxpayers’hard-earned dollars.
For the record, I am not against the State’s provision of social safety nets especially given the obtaining context of chronic inflation. While the government’syearly unwavering support to vulnerable societal groups, like rural smallholder farmers, is highly commendable, it remainsto be seen if the Treasury will be able to bear the ballooning spending burden sustainably, that is to say, be able to achieve optimal spending levels without jeopardising the stability of its financial position.
Nevertheless, based on historical trends, there is a strong basis to question the sustainability of increased public spendingaimed at shoring up incumbents’ electoral chances.
As such, the already overtaxed consumers and businesses should brace for increased and regressive taxes in the upcoming fiscal year as it will be inevitable for Treasury to find ways to match revenue collections with elevated spending needs.
The adverse impacts of high taxes on the general well-being of the economy and citizens, therefore, cannot be overemphasised.
Typically, high taxes have repercussions on saving culture, business investment, domestic production, labour’s ability to work, consumer incomes, and poverty prevalence, among other effects.
More so, the nation is witnessing regressive legislation being proposed likely because of the upcoming general elections. These include inter alia the pending Patriotic Bill, the Health Service Amendment Bill, and the Private Voluntary Organisations (PVO) Amendment Bill.
A simple analysis of the contents of the PVO Bill shows that the main motive of the Bill is to silence civil society organisations (CSOs) despite CSOs being very crucial when the common objective is to respect the tenets of a thriving democracy.
For example, the PVO Bill will give too much power to the Executive to control and interfere with the work of non-governmental organisations (NGOs).
It will increase the surveillance and monitoring of these NGOs, and it potentially criminalises NGO work and human rights defending.
If passed, these regressive laws being proposed would leave the poor and vulnerable groups,who mostly relyon support from NGOs worse off.
It is well documented, for instance, that Zimbabwe’s public health care sector receives hundreds of millions of US dollars in donor support annually to reduce malnutrition in children and fight diseases like malaria, tuberculosis, and HIV and Aids.
Apart from targeting NGO work, the mounting number of episodes of political violence being witnessed across the country like the bloody violence that occurred in Gutu last month is alarming.
Political disputes, which degenerate into full-scale violence and civil unrest,scare away capital thus constraining business investment — both foreign and domestic.
In short, election seasons increase the investment risk premium for a nation. The need for the suppliers of loanable funds, as well as, entrepreneurs to trade or invest cautiously to avoid excessive losses in 2023 is expected to exert adverse pass-through effects on economic activity.
It is, therefore, my view that in order not to derail the moderation of currency depreciation and price inflation witnessed in recent months, authorities should prudently navigate the upcoming election season.
There are increasing calls to ensure that the Treasury cool down election-linked spending pressure in the months ahead, otherwise the private sector would be crowded-out by excessive domestic public borrowing.
Thus, the nation will remain trapped in a vicious circle of macro-economic volatility. Also, I submit that lawmakers should not rush to pass legislation that scares away investment and isolates Zimbabwe from the international community.
Progressive legislation that leaves no one and no place behind is critical for Zimbabwe if she is to achieve robust and sustained economic growth,which is in line with Vision 2030 aspirations to become an upper-middle-income economy by 2023.
Sibanda is an economic analyst and researcher. He writes in his personal capacity. — [email protected] or Twitter: @bravon96