Zimbabwe 2016 National Budget Brief An Overview Analysis.qxp_Layout 1 30/5/2016 09:42 Page 1



AN OVERVIEW ANALYSIS Budget 2016 Key Insights

 Stronger growth ... but still sluggish: the economy is projected to grow by 2.7% in 2016, in comparison to1.5% growth in 2015. However, the underperformance of the mining sector – especially diamonds – is a major contributing factor to the continued economic and fiscal challenges.  Increased diaspora remittances and FDI: diaspora remittances are estimated to reach US$960 million in comparison to US$944 million in 2015 while FDI is estimated to reach US$614 million in comparison to US$591 million in 2015.  Unsustainable current account balance: current account balance is -18.2% of GDP, double that of the -9% SADC threshold.  Small deficit: 2016 Revenues projected at US$3.85 billion, and total Expenditures projected at US$4 billion resulting in a deficit of US$150 million, about 1.1% of GDP.

 The 2016 State Budget is an employment budget that leaves no room to invest in children: employment costs account for a staggering 80% of total spending. Capital Expenditures account for only 8% whilst other Current Expenditures account for 12%.  Relatively small share for social services: Social services sector are allocated a combined total of US$1.35 billion, or only about 33% of the total budget. In comparison, the average share of social sectors in the SADC region is above 45%.

 Proposed wage reform must benefit children: the creation of new fiscal space through the positive fiscal reform measures contained in the 2016 National Budget must benefit sectors affecting children the most, in particular health, education, water and social protection.  Unsustainable high level of aid dependency in key sectors for children: off-budget aid dependency in social sectors remains a concern, especially as donors contributions to these sectors is declining and thus threatening the gains that have been achieved for children so far.  Unforeseen impact of El Nino: the 2016 Budget does not make the necessary allocation to mitigate the negative impact that the El Nino effect will have on social development and welfare of children.  Off-budget aid dependency in the social sectors remains a concern, more so that donor contributions to these sectors is declining threatening the gains that have been achieved for children thus far.

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Economic Growth Forecast

The Zimbabwean economy remains in distress and this is particularly harsh for children. Having reached a peak of 11.9% in 2011, growth has remained sluggish, and is estimated at 1.5% in 2015, some 1.7 percentage points lower than the initial forecast of 3.2% in the 2015 Budget. However, the Government expects growth to gather some pace - expanding to 2.7% in 2016. This modest growth is premised on the following, key factors: (i) implementation of the fiscal space and sustainability framework; (ii) clearance of arrears to the International Financial Institution (IFIs), thereby unlocking new financing; (iii) improved cost and ease of doing business, (iv) improved liquidity conditions; (v) stability in the banking sector; (vi) successful implementation of reforms under the Staff Monitored Programme (SMP); (vii) low international oil prices, implying reduced energy import costs and (vii) positive growth in tourism, construction, communication and a good agricultural season. In pursuit of growth, the Government’s policy thrust in 2016 will focus on fiscal reform, arrears clearance and reengagement with the international community. Already, some fiscal reform measures are underway to reduce the public sector wage bill, while the Government’s strategy on arrears clearance was approved during the IMF/ World Bank Annual Meetings in Lima in October 2015. Similarly, the government commits to the full implementation of the reform programme under the Staff Monitored Programme (SMP) and engaging other bilateral creditors for a programme to clear arrears.


However, significant headwinds to growth remain. These will impose a significant drag on the growth, particularly the El Nino induced drought which will adversely impact on Figure 1: GDP Growth and Inflation Trends agricultural production and growth. More so, the 14 imminent drought will increase food imports thereby 12 11.9 worsening the already precarious current account 11.4 10.6 10 balance, whilst at the same time diverting some resources 8 from productive and social sector activities. Other risks 6 to growth include (i) weak aggregate demand and low 4.5 4 international mineral prices; (ii) fiscal space constraints 3.8 3.7 3.5 3 2.7 2 – weak revenue outturn against rising expenditure 1.6 1.5 demands, including unplanned but unavoidable 0 -0.2 2010 2011 2012 2013 2014 2015 Est 2016 Proj -1.6 expenditures such as food imports; (iii) institutional -2 -2.3 weaknesses in local authorities and state enterprises, -4 affecting policy transmission mechanism; (iv) weak Economic Growth Inflation (YoY) export competitiveness on account of weakening SA Source: 2016 National Budget Statement Rand, and v) challenges in the domestic mining sector. In addition, the external sector remains in a precarious position. Current account deficit is projected at US$2.58 billion, about -18.2% of GDP, against the SADC macro-economic convergence target of less than -9% of GDP. Further, even after clearing the US$1.8 billion arrears to IMF, WB and AfDB, the country will remain with a debt of US$6.57 billion, almost double the current budget revenues, of which 61.3% is owed to bilateral creditors. This will remain an impediment to accessing external lines of credit critical for growth.


Zimbabwe 2016 National Budget Brief An Overview Analysis

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Ongoing political discourse will continue to be a drag on the growth and development prospects of the country. With the political climate appearing to deteriorate and political rivalry and violence on the rise and a decisive election due within the next 30 months, economic growth may be constrained for some time to come.

Inflation Outlook

Zimbabwe likely to experience further deflationary pressures in 2016, with an annual average forecast of -1.6% by end of the year, albeit 0.7 percentage points higher than in 2015, (Figure 1). In 2015, the general price level in the economy remained low, with year on year inflation opening the year at -1.3%, and reaching -3.3% by October 2015. The general price deceleration has, largely been attributed to price correction, weak aggregate demand, tight liquidity and depreciation of the South African Rand against the United States dollar.


The 2016 National Budget projects to raise total revenues amounting to US$3.85 billion, 6.1% lower than the initial estimate of US$4.15 billion projected in the 2015 National Budget. Total Expenditures for 2016 are projected at US$4 billion, giving a deficit of US$150 million, about 1.1% of GDP. This will be financed mainly from domestic borrowings with the potential problem of ‘crowding out’ private investment.


In 2016, the government target is to collect revenue of US$3.85 billion, about 27.2% of GDP. This is one of the highest Tax-to-GDP ratios in Sub-Saharan Africa. Without major reforms the aforementioned negative factors are likely to remain in 2016, affecting the revenue outturn. Any shocks to the revenue projection will further worsen the already tight fiscal space, thereby undermining the implementation of the planned programmes and projects. Zimbabwe 2016 National Budget Brief An Overview Analysis

US$ Millions

The slowdown in economic growth has had an adverse effect on revenue performance. Having reached a peak of US$3.93 billion in 2014, budget revenues declined to US$3.54 billion in 2015, about 13.6% lower than the 2015 Budget estimate (Figure 2). The lower-than-expected revenue performance can be attributed to a number of factors Figure 2: Total Revenue Trend (2009 - 2016) including: (i) subdued economic activity, with low 3928 capacity utilization, company closures and job loses, 3741 4000 3452 (ii) depressed aggregate demand, (iii) liquidity 3500 constraints, (iv) revenue leakages, and (v) illicit 2770 3000 financial flows. 2198



2500 2000 1500 1000


500 0






Source: Min of Finance: Various Budget Statements

2014 2015 Est 2016 Proj


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No significant changes are expected to the structure of revenue composition between 2015 and 2016. Tax revenues expected to contribute around 97% of the total government revenues, with the remainder coming from non-tax revenues, (Figures 3a and b).

Figure 3a: Composition of Revenues in 2015 Est Non-Tax Revenue 4%

Other Indirect Taxes 3%

PAYE 23%

VAT 25%

Corporate Tax 10% Excise Duty 20%

Customs Duty 9% Other Direct Taxes 6%

Source: 2016 National Budget Statement

Figure 3b: Composition of Revenues: 2016 Proj

There has been some notable shifts in the contribution of different tax sources since 2013. For instance VAT contribution has fallen from 30% to 25%, reflecting contraction in aggregate demand in the economy. The economy is now more dependent on individual income tax (PAYE), whose contribution has increased from 20% to an estimated 23% in 2015. Excise duty has also increased, benefiting mainly from upward reviews in rates for fuel. The demise of the diamond sector has also meant that non-tax revenues have declined from 10% to 4% in 2015, whilst corporate tax has remained largely unchanged, reflecting the constrained business environment.


Total Government expenditures are largely determined by the size of the resource envelop, as the PAYE government seeks to limit the size of fiscal deficits. In 21% VAT 25% 2015, total government expenditures stood at US$3.837 Corporate Tax 9% billion against revenue estimates of US$3.543 billion, Other Direct Taxes thus a budget deficit of US$294 million, financed 10% Excise Duty Customs Duty largely through domestic borrowing. This has seen total 19% 10% domestic borrowing (net) reaching US$258 million, about 9% of total expenditures as at end-September 2015. With only US$190 million spent on capital Source: 2016 National Budget Statement projects over the same period, it raises the question as to whether the government is borrowing to meet its wage obligations. This is not only unsustainable but has a crowding-out effect on private sector borrowing, which impedes growth. Other Indirect Taxes…

Non-Tax Revenue 3%

In 2016, total Government spending is projected to be 4.2% higher than in 2015. Total expenditures and net lending is projected at US$4 billion, against total revenues of US$3.85 billion, hence a budget deficit of US$150 million.

Composition of Expenditures

On account of revenue under-performance, government expenditures were being incurred on a “what’s-more-pressing” basis, with wages receiving top priority. In 2015, US$3.159 billion (82%) of the government budget was spent on employment costs. Growth-enhancing capital expenditures accounted for only US$237 million or 6% of the budget, with the remainder of 12% was spent on other recurrent costs and loan repayments, respectively, (Figure 4a).


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Figure 4a: Composition of Expenditures in 2015 Capital Exp 9%

Other Current Exp 32%

Source: 2016 National Budget Statement

Figure 4b: Projected Composition of Expenditures in 2016 Capital Exp 7%

Employment Costs 59%

Other Current Exp 32%

Employment Costs 61%

Source: 2016 National Budget Statement

The situation is expected to remain broadly unchanged in 2016, with the budget remaining an “employment budget” and unsupportive of long-term growth. Employment costs are projected to increase in nominal terms by 1% to US$US$3.19 billion in 2016. As are share of total spending, employment costs are projected to account for 80% of total budget and 22.5% of GDP, against sustainability thresholds of 30% and 7%, respectively, in line with regional countries. Although there ought to be inter-government fiscal transfers between national and sub-national governments, this has not been the case. Local governments are left to raise their own revenue from local sources and spend on service delivery accordingly. These resource flows are not monitored in a systematic way and thus no real analysis of local government spending on investments that support children, for instance, can be provided.

Proposed Wage saving Measures

The high share of employment costs to total expenditures remains a grave concern, crowding out other non-wage capital and social spending, key for stimulating growth and reducing poverty. The Government acknowledges the need to reign in on its high wage costs and create room for other growth-enhancing expenditures. Consistent with the above, the 2016 National Budget proposes a number of measures that were proposed in the fiscal space and sustainability framework that was development jointly by the Government, UNICEF and other development partners, as well as private and civil society players. If fully implemented these measures can yield US$170.4 million in annual savings, and it is important for social sectors to benefit from these proposed savings. Most of the proposed measures relate to the education sector, where at least US$100 million can be realized from the proposed reforms. It would therefore, be important for such savings to be channeled towards real investments in education infrastructure and services so as to improve outcomes for children.

Zimbabwe 2016 National Budget Brief An Overview Analysis


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PROPOSED MEASURE Rationalisation of Youth Officer posts at Ward Level

Rationalisation of the Ministry of Youth’s Harare and Bulawayo Metropolitan Provincial Structures Rationalisation of the Ministry of Women Affair’s Harare and Bulawayo Metropolitan Provincial Structures

Rationalisation of Extension Worker Structures at the Ward Level in the Agricultural Sector

Rationalisation of Ministry of Local Government’s Provincial and District Office Structures for Harare and Bulawayo Metropolitan Provinces













Reviewing Vacation Leave Policy in the Education Sector



Rationalisation of Student Teacher Allowances





Reviewing Manpower Development Leave Policy


Withdrawing Support to Non-Formal Education

Withdrawing Support from Funding Bridging Programmes Offered by Tertiary Colleges Non-payment of Remuneration to Teachers at Trust Schools Retirees on Annually Renewable Contracts

Reducing Employment Cost Obligations to Grant Aided Institutions


Source: 2016 National Budget Statement


US$ Millions

800 700 600 500






300 180 174




Source: 2016 National Budget Statement


Industry & Commerce

Rural Dev & Preservaon of Culture

Public Services Commission

Parliament of Zimbabwe

Youth Indigenisaon & Econ Empowerment

Finance & Econ Development

Welfare Services for WVWC&FDR

Foreign Affairs

Env Water & Climate

Transport & Infrastructure Development

Jusce Legal & Parl Affairs

Agric Mech & Irrigaon Development


Public Service, Labour & Social Welfare

Higher & Terary Education, Science & Tech Dev


Health & Child Care

Home Affairs

Pri & Secondary Educaon


Local Gvt, Pblc Works & Nat Housing

46 40 37 34 28 22 20 20 19 17 17











Allocations to Line Ministries

Figure 5: Top 20 Allocations to Ministries 900



The Ministry of Primary and Secondary Education (MoPSE) was allocated the highest budget of US$890.14 million, (Figure 5). Home Affairs got the second highest budget of US$396.97 million (9.9%, of total budget). Health and Child Care was fourth at US$330.79 million, representing 8.3% of the total expenditure and net lending. Whilst other social sector ministries such as Public Service, Labour and Social Welfare and Environment, Water and Climate accounted for 4.4% and 0.9% of the total expenditures, respectively. Whilst MoPSE got the highest budget allocation, 98.4% of the budget will be spent on employment costs. In terms of non-wage spending, the sector ranks 16th, with just US$13 million (1.6% of the sector’s allocation), (Figure 6), being earmarked for non-wage spending in learning and teaching materials and school infrastructure investments. With a total of over 8,000 schools, excluding ECD, this translates to less than US$1,640 per school per year. This further translates to Zimbabwe 2016 National Budget Brief An Overview Analysis

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less than US$3.34 per year. Clearly this is insufficient to make a meaningful impact on the teaching and learning environment, and hence weak learning outcomes.

Figure 6: Top 20 Non-wage Allocation 300 250

US$ Millions

Higher and Tertiary Education, Science and Technology Development got the highest non-wage allocation, (Figure 6). This is earmarked for current transfers to state universities and colleges.

200 150 100 50


171 130 96 49 46

32 31 30 26 25 21 20 16 15 13 12 10 7



Source: 2016 National Budget Statement

Figure 7: 2015 Gvt Non-wage vs UNICEF-managed Off-budget Expenditure in Social Sectors 45 39.3

40 35.4

US$ Millions

35 30

27.1 27.5



Such skewed public spending on social sectors places an unsustainable burden on donors and families (out of pocket expenditures). Donor-dependency on nonwage social sector expenditures remains a concern with these off-budget expenditures dominating non-wage expenditures in these sectors in 2015 (Figure 7), and likely to continue as such in 2016.

20 15 10


6.9 6.9



7.0 7.0


1.7 1.7


Health Gvt Target

Gvt Actual

Source: 2016 National Budget Statement

Zimbabwe 2016 National Budget Brief An Overview Analysis


Harmonised Cash Transfer


Transi on Funds Actual


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Table 1: Selected Child Indicators

Significant gains have been made for children in the recent past (Table 1), but these gains cannot be sustained on the account of donors. This re-emphasizes the need for the fiscal reform measures to create the fiscal space for increased social sector investments.




Under-five mortality



Maternal mortality


Full immunization


Prevalence of stunting


Exclusive breastfeeding (6 months)


Use of improved drinking water


Use of improved sanitation


Open defecation


Net attendance (primary school)

Net attendance (secondary school)


Children under 5 whose births are registered Women (20-49 years) married before 18

Source: MICS 2014

45 39 32

614/100,000 70 28 41 76 62 32 94 57 32 33


1. Fiscal Space remains tight, with limited room for increased investments in children. There is, therefore, need for commitment by the government to implement to proposed fiscal & wage bill reforms and the proposed revenue enhancing measures. Equally important is the need to fully implement the SMP and the arrears clearance strategy approved by creditors during the Lima 2015 IMF/ World Bank annual meetings. 2. Off-budget support by donors towards the social sectors, although necessary in the short term, may have medium to long term negative impacts on government systems and sustainability.

3. The government needs to accelerate implementation of decentralized budget monitoring and tracking as a way of enhancing efficiency, accountability and transparency in public sector spending.

4. Disbursements of non-wage allocations to critical sectors that benefit children remains a major concern. In 2015, only 30% of the non-wage expenditures in education and health were actually disbursed reflecting both the dire fiscal circumstances and the impact on quality of services for children.

5. Government efforts to create fiscal space through a number of mentioned reforms is welcomed, but the gains that arise (projected at USD170 million) should be spent on children. All stakeholders should continue to advocate for fiscal discipline, implementation of sound/ credible policies and better expenditure prioritization for these gains to materialize.


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6. Experience has shown that the Government is committed to economic and fiscal reforms and support is need to push for the implementation of such reforms. In February 2015, UNICEF convened a High Level Policy Dialogue on Fiscal Space, which was attended by senior officials in government, ZIMRA, RBZ Heads of Development Partners and Ambassadors. The outcome of the Dialogue was a Fiscal Space Roadmap of reforms, some of which were adopted and will be implemented through the 2016 National Budget, (Annex 1).

7. More resources would still be required, particularly in view of the imminent drought and the need to safeguard the gains recorded in social sectors to-date. Hence, in the short-to-medium term, pressure will be on the UN and other development partners to mobilise resources for enhancing food security, as well as for non-wage spending in social and infrastructure investments.

List of Acronyms FDI

Foreign Direct Investment


Multiple Indicator Cluster Survey


Sothern Africa Development Community






Gross Domestic Product

Ministry of Primary and Secondary Education Staff Monitored Programme Zimbabwe Republic Police

Reserve Bank of Zimbabwe

Zimbabwe Revenue Authority

United Nations

UNICEF, 2015 UNICEF ZCO 6, Fairbridge Avenue, Belgravia, Harare http://www.unicef.org/Zimbabwe Zimbabwe 2016 National Budget Brief An Overview Analysis


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Annex1: List of the Proposed Fiscal Reform Measures adopted in the 2016 Budget MEASURE


Mining Fiscal regime


Consolidate all revenues to the CRF


Reforming the public pension system to DB


Wage bill reforms


Public Enterprise reforms


Investment climate


Easy of Doing Business Reforms




l l

Attracting Diaspora Remittances


Bill to enhance transparency and accountability to be finalized by June 2016

Treasury to enhance oversight on statutory funds by directing all collecting entities to open accounts with the RBZ and transfer all balances Gvt to migrate from the Pay As You Go to Defined Benefits (DB) Pension arrangements See slide 16

Public Enterprises and Local Authorities to maintain a 30/70% employment costs to service delivery ratio

10 SOEs to be restructured starting with GMB and CSC

Strengthening of SOE corporate governance framework Minister of Youth, Indigenisation and Economic Empowerment to announce and gazetting before Christmas the frameworks’ templates and procedures for implementing the indigenisation policies to promote investment and eliminate discretionary application of the law. Thematic Technical Working Groups on specific indicators now in place;

Targeted industries and zones for SEZs identified; and

Ministerial Working Committee is working on an appropriate model for an effective “one Stop Shop” that is E-based Regulatory framework for Money Transfer Agents reviewed, including permission to remit funds outside the country; and


National Diaspora policy to be finalized in 2016

Public Procurement


Bill to enhance efficiency and transparency

Review of the PFMA


To enhance transparency and sound debt management

Efficiency in Tax Administration


Installation of CCTVs at borders to reduce leakages at Borders



l l


Public procurement to be finalized by Mid-2016

Revenue monitoring dash boards for the Minister, Secretary, Revenue department in MoFED and the ZIMRA Board Chairperson;

Automated Verification of travelers for rebate of duty; Efficiency at Beitbridge border post

Zimbabwe 2016 National Budget Brief An Overview Analysis