14
June 2020 2020 National Budget Brief ZIMBABWE
June 2020
2020 National Budget Brief
ZIMBABWE
2 ZIMBABWE NATIONAL BUDGET BRIEF
Key Messages and Recommendations
v Despite the economic reform agenda, real gross domestic product (GDP) shrunk by 8.3% in 2019and is expected to shrink further by more than 7% in 2020 given the coronavirus pandemic.Considering that the continued underperformance of the economy is disproportionately affectingthe poor, the government is encouraged to strengthen the national social protection system.
v The introduction of the new local currency in June 2019 has been met with a lot of challengesincluding accelerated loss of value due to high inflation, thereby increasing vulnerabilities.The government needs to put in place adequate measures that foster currency stability andconfidence. The continued depreciation of the local currency has a disproportionate impact onthe poor and those on fixed income.
v Fiscal consolidation efforts are not bearing the desired results in the envisaged timeframe,mainly on account of lack of complementarity with monetary policy measures. Thegovernment should strengthen co-ordination between authorities responsible for monetary andfiscal policies.
v Child poverty is on the rise, nationally, 61% of children are poor with a disproportionatedistribution between urban (20%) and rural (76%) areas. The government is called upon toimplement expeditiously all social protection programmes as announced in the budget.
v Budget credibility remains a huge challenge for the government. Fiscal discipline needs to beentrenched in Ministries, Departments and Agencies to ensure perennial expenditure overrunsare contained to anchor fiscal consolidation. In addition, it is also important for the governmentto make realistic assumptions on major expenditure pressure areas such as grain procurementand agriculture input support programmes that have driven the expenditure overruns over the years.
v The introduction of Fiscal Transfers has not been accompanied by comprehensive guidelinesfor implementation. The government needs to swiftly provide a framework to guide managementof the devolution funds at local level to ensure prioritization of local infrastructure that can catalysedevelopment. This will potentially reduce inequalities within and among communities.
v Revenue from personal income tax has been declining from 21% in 2016 to 12% in 2020,while that of corporate income tax declined from 14% in 2018 to 10% in 2020, a reflectionof the informalization of the economy. With the decline in income-based tax heads contributionto total revenue, there is need for new innovative revenue measures that can tap into theinformal sector to sustain the government budget. Government needs to nurture a business-friendly environment through consistent and predictable fiscal and monetary policies necessaryfor private sector investment.
v The stock of domestic and foreign debt continues to put pressure on the fiscus, at US$10.4billion as at end 2019, the consolidated public sector debt constitutes 50.1% of GDP andexpected to increase to 53.9% by end of 2020. Though the country has not defaulted onmaturing domestic debt, debt service obligations continue to reduce available resources forservice delivery. Current foreign debt obligations will not only deprive future generations ofresources but continue to restrict Zimbabwe’s access to international lines of credit.
UNICEF | JUNE 2020
1. MACRO AND SOCIO-ECONOMICCONTEXT
Macroeconomic Context
The 2020 budget comes against a very difficult economicenvironment with deterioration of socio-economic conditionsand increasing vulnerability, mainly on account of the currenteconomic adjustment and further exacerbated by climate inducedshocks such as the drought and Cyclone IDAI that affected thecountry in 2019. The emergency of the COVID-19 pandemic inDecember 2019 exert immense pressure to the alreadyprecarious economic situation elevating vulnerabilities beyond theexisting capacity of the Government to respond to the shocks.
The agricultural sector is hamstrung by climatic shocks andshortage of critical inputs. Industry capacity utilization is low andforecasted to drop to around 30% in 2020. Meanwhile, aggregatedemand is low as salaries have not been reviewed in line withhigh inflation, hence disposable incomes have been eroded.
Table 1 provides a summary of some key economic indicators forthe country:
INTRODUCTION
This budget brief is one of six that explore the extent to which the national budget addresses the needs of children inZimbabwe. The briefs analyze the size and composition of approved budget allocations to sectors that affect children infiscal year 2020 as well as offer insights into the efficiency, effectiveness, equity and adequacy of past spending. The mainobjectives are to synthesize complex budget information so that it is easily understood by stakeholders and to put forthpractical recommendations that can inform and make financial decision-making processes better respond to the needs ofchildren and poor households.
The 2020 National Budget, whose theme is ‘Gearing for Higher Productivity, Growth and Job Creation’ was couched tokickstart the process of departure from austerity to stimulus, seeking to propel production and boost aggregate demand. Itis, therefore, critical to analyse the budget in a simplified way to assess the extent to which it addresses the TransitionalStabilisation Programme (TSP) agenda and its implication of the welfare and development of the children of Zimbabwe.
ZIMBABWE NATIONAL BUDGET BRIEF 3UNICEF | JUNE 2020
Table 1: Key Social Development Indicators in Zimbabwe
1 The International Monetary Fund, 20202 https://www.imf.org/en/Countries/ZWE3 Updated 2012 Population Census Report, March 20194 International Monetary Fund, World Economic OutlookDatabase, April 2020
GDP Developments
Real Gross Domestic Product (GDP) growth rate per capitaaveraged -2.1% between 2016 and 2019 as shown in Figure1. Hopes for marginal rebound in 2020, which had been initially
projected at about 0.8% from a 2019 contraction of 8.3%1 have
been dashed by the emergence of
the COVID-19. The economy is now
projected to decline by 7.4%.2
Factoring inflation, and population
growth rate that has been estimated
around 2.35%3 for the decade, per
capita income is projected to decline
by 9.1%4 in 2020 implying that the
population is getting poorer
compared to the 2018 status.
Indicator Value Source
GDP per capita (in local currency) 1,152 MoFED
GDP per capita (in current US$) 1,179 The World Bank Group
Real GDP per capita growth rate (%) -10.1 Author calculation
Gini coefficient 0.4 Zimstat
Inflation rate (%) 255.3 International Monetary Fund
Food inflation rate (%) 15.75 Reserve Bank of Zimbabwe
Revenue (% of GDP) 17 National Budget Statement
Expenditure (% of GDP) 18 National Budget Statement
Debt (% of GDP) 50.1 International Monetary Fund
Unemployment, total (% of total labor force) 4.9 The World Bank Group
Informal employment, total (% of total employment) 63 The World Bank Group
The 2020 economic outlook still faces significant downside risks,
with the 2019/2020 rainfall season having experienced
unfavorable conditions as witnessed by the prolonged mid-season
dry spell that has had a significant impact on the current crop. In
addition, the difficult macro-economic conditions are not likely to
dissipate in the short-term and have since been magnified by the
COVID-19 pandemic.
Inflation Developments
High inflation remains one of the greatest risks that the countryfaces in the short to medium term. The country has experienced
significant spiral in inflation, rising from an annual average of
10.6% in 2018 to annual average of 255.3% in 2019, and
projected to average 319% in 2020. Figure 2 provides inflation
trends for the period 2017-2020.
4 ZIMBABWE NATIONAL BUDGET BRIEF
the official rate, indicating market shortages of foreign currency.
Figure 3 shows the exchange rate developments in 2019.
UNICEF | JUNE 2020
0.8
4.73.5
-8.3-7.4
-1.6
2.31.0
-10.1-9.1
-12.0-10.0-8.0-6.0-4.0-2.00.02.04.06.0
2016 2017 2018 2019 2020
Perc
ent
GDP growth rate Real GDP per capita growth rate
Source:MoFED and WEO, April 2020
Figure 1: GDP and real GDP per capita growth, 2016 to 2020 (as %)
0
5
10
15
20
25
11-Feb 11-Mar 11-Apr 11-May 11-Jun 11-Jul 11-Aug 11-Sep 11-Oct 11-Nov 11-Dec
ZWL
Interbank US$/RTGS (Parallel)
Source: Reserve Bank of Zimbabwe, Author database
Figure 3: Interbank and Parallel Market Exchange Rates(ZWL$/US$) 2019
0.9 10.6
255.3
319.0
2017 2018 2019 2020
Percent
Source: MoFED and IMF, April 2020
Figure 2: Annual Inflation, average consumer prices
High inflation has negatively impacted on purchasing power ofdisposable household income. At aggregate level, inflation has
negatively impacted on government’s capacity to implement
programmes, especially social sector programmes that directly
impact on the poor as the budgets did not easily adjust in tandem
to inflation developments.
Exchange Rate Developments
The country is experiencing exchange rate volatility that waslast seen in the run up to the 2007-2009 economic crisis. The
parallel market exchange rate continues to depreciate faster than
Social Development Trends
Zimbabwe has a young population, with children constituting47% of the total population5. Nationally, 78.9% of households
have children (younger than 18 years old), with 52.8% of these
having at least one child in the 0-5 age range6. Over two-thirds of
the population reside in rural areas (68%), and unlike many African
countries the rural population continues to grow as a proportion
of the total population. Table 2 summarizes the key population
indicators for Zimbabwe:
Indicator Value
Population, ages 0-17 7.6 (millions)
Population, ages 0-17 (% of total population) 47
Population growth (annual %) 2.35
Poverty headcount ratio at national poverty line(% of population) 70.5
Child multi-dimensional poverty rate (%) 61.3
Human Development Index (HDI) ranking(Note: higher ranking is better) 0.567
Infant mortality rate (per 1,000 live births) 47
Prevalence of stunting, height for age (% ofchildren under 5) 23.5
and/or Prevalence of severe wasting, weightfor height (% of children under 5) 5.7
Adjusted net enrollment rate, primary (% ofprimary school age children) 67.6
People using at least basic drinking waterservices (% of population) 77.1
People practicing open defecation (% ofpopulation) 21.7
Table 2: Selected Social Development Indicators
5 Updated 2012 Population Census (2019)6 Zimbabwe Child Poverty Report (2019)7 World Bank, Human Development Indicators
Source: Zimstat 2019; MICS 2019, World Bank, Human Development Indicators
The country is expected to experience a demographic windowof opportunity in the next decade, critical for socio-economicdevelopment, provided there is sufficient investments inchildren and young people. This is expected to emanate from asustained decline in the fertility rate. Population trends inZimbabwe for the decade to 2032 suggest a potential decline inthe percentage of children, an increase in the proportion of theworking-age population and an equilibrium in the proportion of theelderly8. However, positive benefits from the demographicdividend will only accrue to the country if enough opportunitiesare created in the labor market.
Though there is still a significant proportion of Zimbabweansliving in poverty9 (70.1%) in 2017, there is a slight improvementfrom 72.3% reported in 2011/12. However, the food poorpopulation grew by 6.8 percentage points from 22.5% in 2011/12to 29.3% in 2017. Rural areas are poorer, with 86% of ruraldwellers living in poverty (40.9% in extreme poverty), compared to37% in urban areas (4.4% in extreme poverty)10. Urban areas havelower poverty over time and the national pattern is being driven byworsening conditions in rural areas leaving poverty prevalence ratesin rural areas at high levels. However, poverty levels are likely toincrease in 2020 due to the transition effect of fiscal consolidationand inflation, amid limited economic opportunities.
Child poverty is widespread. Rural - Urban differences aresubstantial, with higher poverty indices in rural areas a reflectionof the overall national poverty statistics as shown in Table 3. Childpoverty is closely related to household size and education of thehead of the household in which they live.
2. AGGREGATE SPENDING TRENDSAND PRIORITIES
There is a significant increase in total budget in nominal termsmainly driven by the rise in inflation. In 2020, total budget
increased by 36% in real terms compared to the huge decline in
2019 of 45% which was mainly a result of change in currency in
June 2019. The 2020 increase is not significant in level terms
given that it is from a low base of total budget of US$1.9 billion
for 2019. Figure 4 show nominal and real total government
spending trends for the period 2015-2020.
ZIMBABWE NATIONAL BUDGET BRIEF 5UNICEF | JUNE 2020
Source: Child Poverty Report, Zimstat, 2019
Table 3: Child poverty and child poverty indices by rural/urban
8 Updated 2012 Population Census Projection Report, Zimstat, March 20199 Poverty refers to the prevalence of people in households whose consumption expenditures percapita are below the upper poverty line (the Total Consumption Poverty Line). Extreme povertyrepresents a shortfall below the lower poverty line (Food Poverty Line).
10 Poverty and Poverty Datum Line Analysis in Zimbabwe, Zimstat, 2017
11 Technical Note: Adjusting fiscal data for the structural breakZimbabwe has been using a multicurrency regime with the reference currency being the US$ from2009 to February 25, 2019. In 2016, the country introduced the bond coin and later the bond note, asurrogate currency with a parity exchange rate to the US$. However, macroeconomic developmentssince the second half of 2017 led to a mismatch between the official and the parallel market exchangerates. Pricing structure in the market predominantly followed the parallel market exchange rate. TheGovernment officially abandoned the parity exchange rate in February 2019 and subsequently adopteda mono-currency regime in June 2019. In this regard, in order to truly reflect the US$ value of thebudget expenditure for the period 2017 – February 2019 and generate comparable statistics for theperiod 2009 - 2020, fiscal numbers for the period 2017 – 2020 have been converted to US$ valuesapplying the following implied exchange rates produced by the IMF https://www.imf.org/en/News/Articles/2020/02/26/pr2072-zimbabwe-imf-executive-board-concludes-2020-article-iv-consultation:-• 2017 – ZWL$1.3/US$• 2018 – ZWL$2.0/US$• 2019 – ZWL$8.5/US$• 2020 – ZWL$21.5/US$
Area Percentpoor
Percentfood poor
Povertygap
Povertyseverity
Rural 76% 48% 0.398 0.194
Urban 20% 5% 0.237 0.081
National 61% 36% 0.384 0.184
Key Takeaways
l Overall and child poverty is on the rise which calls forthe need to implement the planned social protectionprogrammes as announced in the budget, however,cashflow and human resources for the social sectorsremain constrained which may exacerbate thevulnerabilities faced by children.
l Access to essential social services is a challenge forpoor children leaving in urban areas due to economicreasons, it is therefore, critical to design specific safetynets that also cater for urban population.
4 5 7 8 18
64
3.8 4.6 4.8 3.4 1.9 2.6 -
20
40
60
80
2015 2016 2017 2018 2019 2020
US$
/ZW
L$ b
illio
n
Nominal Expenditure Real Expenditure
Source: MoFED, various Estimates Book of Expenditure
Figure 4: Nominal and real total government spending trends, 2015-2020
For 202011, Ministries, Departments and Agencies presented
huge resource requirements amounting to more than ZWL$136
billion (approx. US$6.32 billion), against projected revenues of
ZWL$58.6 billion (approx. US$2.7 billion). In view of the resource
constraints, and the need to sustain the fiscus, the Government
approved total budget expenditures of ZWL$63.6 billion (approx.
US$2.6 billion) implying a budget deficit of ZWL$ 5 billion (approx.
US$232 million) translating to 4.61% of GDP.
Spending changes
There has been an increase in the nominal allocation to socialprotection. However, its share to total expenditure declinedfrom 5% in 2019 to 4% in 2020, while, its share to GDPremained constant for 2019 and 2020. Key social protection
programmes in 2020 include a wide range of subsidies for basic
commodities and public transport, tuition grants (in the form of
6 ZIMBABWE NATIONAL BUDGET BRIEF
BEAM and free basic education), expanded Social Cash Transfers
as well as school feeding and free sanitary wear for in-school girls
from grade 4 to form 6. Figure 5 shows social protection
expenditure trends since 2016.
the same period. General Public Services function, which includes
transfers to local tiers of government accounts 31% (US$904
million), up from 29% (US$628 million) in 2019.
UNICEF | JUNE 2020
2%
1%
4%
5%
4%
0.4%0.1%
0.8% 0.6% 0.6%
2016 2017 2018 2019 2020
Social Protection (Family & Children) as % of Total ExpenditureSocial Protection (Family & Children) as % of Real GDP
Source: MoFED and author calculation
Figure 5: Social Protection (Family & Children) as % of TotalExpenditure & as % of GDP
23 24 23 29 31
21 16 16 13 11
1713 13 8 13
17 26 16 24 18
7 68
6 102 1
45 42 3
43 1
11 12 16 12 13
2016 2017 2018 2019 2020
Prop
ortio
n of
Tota
l Exp
endi
ture
%
General Public Services Defence, Public Order & Safety Primary & Secondary EducationAgriculture Health Social Protection (Family & Children)Debt Service - Interest Payments Other
Source: MoFED and author calculation
Figure 6: Investment Priorities, (main functions as % of TotalExpenditure)
The majority of the poor remain vulnerable and without accessto the safety nets despite budget provision for the above socialprotection programmes due to delayed implementation. Of the
subsidies planned, only those for maize meal and public transport
were implemented by December 2019, and arrangements for
subsidies on cooking oil and bread are still to be put in place. In
addition, the maize meal subsidy arrangement has faced several
challenges which pose significant risks to its sustainability,
including coordination of the facility, accountability and diversion
of the product to parallel market resulting in mistargeting.
The additional social safety nets introduced in 2020 possess acoordination challenge for the authorities. For example, Tuition
In Aid grants were allocated under the Ministry of Primary and
Secondary Education while BEAM is under the Ministry of Public
Service, Labour and Social Welfare. However, these programmes
target to support school children from poor families but
administered by different Ministries. There is high possibility for
duplication and there may be limited opportunities for learning
from experiences gained in implementation of BEAM.
Spending priorities
The 2020 National Budget provides for increased allocationsfor social sectors, mainly health, and education in both nominalterms and as a proportion of the total budget as shown inFigure 6. The proportion of health allocation increased from 6%
(US$142 million) of the total budget in 2019 to 10% (US$300
million) in 2020. Similarly, primary and secondary education
increased from 8% (US$176 million) to 13% (US$395 million) over
the same period. Agriculture remained the leading priority,
accounting for 18% (US$527 million) of total budget, although this
was less than the 2019 proportion of 24% (US$520 million). The
proportion of outlays for Defense, Public Order and Safety
declined from 13% (US$283 million) to 11% (US$315 million) over
Key Takeaways
l The structural adjustments that the Government hasbeen undertaking since 2019 has resulted in increasingvulnerabilities. In response, the Government hasdeveloped several social safety nets to cushion thepopulation. However, there is need to improve onefficiency on administering the social safety nets toensure that they reach the intended beneficiaries. Forinstance, collaboration and joint planning is requiredbetween the Ministry of Primary and SecondaryEducation and the Ministry of Public Service, Labor andSocial Welfare in identifying beneficiaries of BEAM andTuition – in – Aid to avoid duplication.
l Current targeting of free sanitary wear excludes somegirls who are in lower grades but require the assistance,hence there is need to adjust the targeting from gradegrouping to age grouping.
3. SPENDING IMBALANCES
Expenditure Composition by EconomicClassification
Expenditure developments since 2016 has seen a remarkabletransformation of the budget structure with the proportion ofthe wage bill declining significantly from a high of 80% of totalgovernment expenditure in 2016 to 30% and 26% in 2019and 2020 respectively. The other expenditure components
comprising of goods and services, transfers and capital
expenditure have had their share to total expenditures increase.
Capital outlays increased from 8% to 39% between 2016 and
2019 as shown in Figure 7.
ZIMBABWE NATIONAL BUDGET BRIEF 7UNICEF | JUNE 2020
80 7361
30 26
67
12
15 26
813 19
3936
3 3 4 13 113 5 4 3 1
2016 2017 2018 2019 2020
Perc
enta
ge
Salaries and wages Goods and services Capital Transfers Interest payments
Source: MoFED
Figure 7: Economic classification of the budget, 2016-2020 (as % of total)
5 7 7 1125
315
27 24
2764
66 44 4834
2913 22 18 14
0%
20%
40%
60%
80%
100%
2016 2017 2018 2019 2020
Perc
ent
Social Sector Infrastructure InvestmentsOther Infrastructure Investments
Agriculture (Grain & Inputs)Other Capital Items
Source: MoFED12
Figure 8: Capital Budget Composition
Key Takeaways
l There is need for rebalancing of capital and recurrentexpenditures for an optimal mix of budget inputs toensure efficiency in service delivery
l There is potential to improve the quality of capitalexpenditure for the budget to deliver better outcomesby shifting resources from soft short-term agricultureexpenditures to long-term real infrastructure investmentsin Health and Education that improve the long-termservice delivery capacity.
Expenditure rebalancing should be prioritized for an optimal mixof budget inputs to ensure efficiency in service delivery.Although the structural recalibration of the budget iscommendable, the significant decline in wage bill composition hasits effects on service delivery, particularly in labor driven servicedelivery sectors such as health and education. The prolongedindustrial action by doctors for the better half of 2019 and theflexible hour work schedule adopted by other health workers hasimpacted greatly on health service delivery, with major healthindicators potentially taking a downward trend in the last half of 2019.
There is great potential to improve the quality of budgetexpenditures to deliver better outcomes. The bulk of the capitalbudget increase is emanating from investments in Agriculture(see Figure 8), though it is declining from the highest level of 66%in 2017 to 34% in 2020. This is mainly on account of grainprocurement for the Strategic Grain Reserve (which is capitalizedby classification) as well as agriculture crop input supportschemes under the Command Agriculture Programme. Despitethe sheer size of agriculture expenditures, over the years theseinvestments have not translated into meaningful socialtransformation as the country’s grain import bill continues to grow.There is, therefore, need to shift resources from soft short-termagriculture expenditures to long-term real infrastructureinvestments in water, sanitation and hygiene, health andeducation that improve the long-term service delivery and thequality of life for citizens.
12 Social Sector Infrastructure (Health, Education, Social Welfare Rehabilitation Centers, Water Sup-ply and Sanitation); Other Infrastructure Investments (Energy and Power Supply, Transport, ICT, Pub-lic Amenities); Other Capital Items (Furniture & Equipment, Vehicles, Other Capital Transfersnon-developmental)
8 ZIMBABWE NATIONAL BUDGET BRIEF
The government is making positive steps in making budgetinformation available to the public. The country scored 23 outof a 100 in the 2017 Open Budget Survey (OBS) transparencypillar and improved to 49 in the 2019. Though this is a massiveimprovement, there is still need to go beyond the sufficiency levelof a 61 score . The Public Expenditure and Financial Accountability(PEFA) Assessment 2017 for Zimbabwe had highlighted thelimited availability of expenditure execution data to assess thevariance a major concern. However, the Government through theOpen Budget Improvement Roadmap supported by UNICEF, isimproving on the budget information reported by the Treasury,with all expenditure outturns being posted on the Treasurywebsite, though there is significant room for improvementparticularly on the classification that is posted. Currently, thebudget outturn is only published in the economic classificationconsolidated at central government level. This limits the analyticalvalue particularly the planned programme outputs which arepresented in programme and administrative formats in theEstimates Book of Expenditure while the actual expenditures areonly presented in economic classification.
The budget credibility problem is more pronounced in capitalspending as shown in Figure 10. The most affected is capital
expenditures where expenditures were nearly triple the budgeted
amounts, on account of agricultural imports due to the 2016
drought. The increases in agriculture spending led to the
displacement of essential outlays for social sectors, particularly
primary and secondary education.
UNICEF | JUNE 2020
4. BUDGET CREDIBILITY ANDEXECUTION
The variance between the approved budget and the reportedoutturn is significant, with deviations ranging from under-performance of 54% to overperformance of 492% for theperiod 2015 to 2017. The deviations are way above theinternational standards under the Public Expenditure and FinancialAccountability (PEFA) framework which provides for ±5% variancefor a credible budget. Significant over expenditures are prominentin the agriculture sector, with the outturn reaching nearly five timesthe approved budget for 2016 and 2017 as shown in Figure 9. Theoutlays for social protection under performed for three consecutiveyears reflecting challenges in budget utilization or non-disbursement of resources by the Treasury.
148
-11 -1 -1-31
430
14 5
-3
-54
492
265
32
-8
24 24 1342 44
-60
40
140
240
340
440
Agriculture Defence, PublicOrder & Safety
Primary & SecondaryEduca�on
Health Social Protec�on(Family & Children)
Perc
enta
ge
2015 2016 2017 2018
Source: MoFED and author calculation
Figure 9: Budget credibility rates in select ministries, 2015-2018(deviation from approved budget as %)
-9
27
61
-6
129
207
2217
200
286
2621 16
140
15
-50
0
50
100
150
200
250
300
Wages and Salaries Goods and Services Capital TransfersPe
rcen
tage
2015 2016 2017 2018
Source: MoFED and author calculation
Figure 10: Budget credibility rates by economic classification,2015-2018 (deviation from amount approved as %)
13 https://www.internationalbudget.org/open-budget-survey/country-results/2019/zimbabwe14 Public Expenditure and Financial Accountability (PEFA) Assessment 2017, August 2018http://documents.worldbank.org/curated/en/435721544532073744/pdf/Zimbabwe-2018-Final-PEFA.pdf
Key Takeaways
l Social Protection budget execution rates suggestchallenges in budget utilization, either due to poorexecution capacity or non or late disbursement as itexperiences under-expenditure for the period 2015 –2017. There is, therefore, need for further analysis todetermine the causes of low budget execution.
l There is potential to improve credibility of the budgetby making realistic assumptions on major pressure areassuch as grain procurement and agriculture input supportprogrammes that have driven the expenditure overrunsover the years.
5. DECENTRALIZATION AND SUB-NATIONAL SPENDING
Zimbabwe adopted a new constitution in 2013 which createda new tire of government, the Provincial/Metropolitan Councils.Prior to 2013, the governance system in Zimbabwe was made up
of central government and local authorities (local government)
with the latter being administratively independent and catering for
their expenses from own revenues. This layer of Government,
together with the existing local authorities, is expected to be a
key component in the devolution exercise and provision of basic
services.
Funding guidelines
Beginning 2019, the national budget provided for an InterimIntergovernmental Fiscal Transfer (IGFTs) Framework whichincluded a formula to allocate resources across provinces andlocal authorities. The IGFTs Formula comprises of capital and
operational grants, whose details are shown in Annex 1. The
elements of the formula are not indicative budgets or guidelines
as to how much should be spent on those functions. Rather, the
components are weighted broadly in line with Government
priorities to provide an indication of relative need.
Spending trends
Though a lighter form of Intergovernmental Fiscal Transferrelationships in Zimbabwe existed prior to the adoption of thenew constitutional provisions, these had been on an adhocbasis. In most cases, the transfers were negotiated by the
requesting local authority, hence, the proportion of fiscal transfers
to total government expenditure were very small until 2019 when
the government started implementation of section 301 of the
ZIMBABWE NATIONAL BUDGET BRIEF 9UNICEF | JUNE 2020
BOX 1: Functions and responsibilities ofProvincial or Metropolitan Councils:-
• planning and implementing social and economicdevelopment activities in its province.
• co-ordinating and implementing governmentalprogrammes in its province.
• planning and implementing measures for theconservation, improvement and management ofnatural resources in its province.
• promoting tourism in its province, developingfacilities for that purpose.
• monitoring and evaluating the use of resources inits province; and
• exercising any other functions, including legislativefunctions, that may be conferred or imposed on itby or under an Act of Parliament.
Source: MoFED, 2020 Estimates Book of Expenditure and author calculation
Table 4: Intergovernmental Fiscal Transfers
Item 2020 BudgetAllocation % of Total
Conditional Grant 14,465,116 11.7%
Rural District Council 2,358,140 16.3%
Other 208,372 8.8%
Roads 116,279 4.9%
WASH 2,033,488 86.2%
Urban Council 12,106,977 83.7%
Roads 348,837 2.9%
WASH 11,758,140 97.1%
IGFTs 109,069,256 88.3%
Rural District Council 90,932,186 83.4%
Education 10,984,762 12.1%
Health 13,000,841 14.3%
Operational Grant 5,686,186 6.3%
Other 7,801,051 8.6%
Roads 28,105,087 30.9%
WASH 25,354,260 27.9%
Urban Council 18,137,070 16.6%
Education 761,209 4.2%
Health 117,279 0.6%
Operational Grant 1,132,419 6.2%
Other 809,814 4.5%
Roads 3,824,116 21.1%
WASH 11,492,233 63.4%
Grand Total 123,534,372 100.0%
In support of devolution and provision of services by the lowertiers of government, Section 301 of the Constitution providesfor intergovernmental fiscal transfers from Central Governmentof not less than 5% of the national revenues raised in anyfinancial year. However, the Government of Zimbabwe only
commenced implementation of this provision with a revised
budget allocation of US$34.8 million (ZWL$703 million) equivalent
to 5% of the revenues in 2019.
For 2020, US$136.4 million (ZWL$2.9 billion) has beenearmarked as Intergovernmental Fiscal Transfers (EquitableGrant) to be shared among the 92 Local Authorities and 8Provincial and 2 Metropolitan Councils.Of this amount, US$106
million (ZWL$2.3 billion) is for Local Authorities. In addition to the
equitable grants, an additional US$14.5 million (ZWL$311 million)
has also been allocated to local authorities as conditional grants.
Priorities for these funds remain a discretion of the local authority,
and are working with UNICEF to ensure WASH, Education and
Health Infrastructure are prioritized. Table 4 provide details of the
2020 Planned Fiscal Transfers for the 92 Local Authorities.
Key Takeaways
l Huge variances in per-capita allocationsto provinces calls for a review of theIGFT to avoid inequities in publicspending.
l Unless addressed, delays in transfersto provinces and other local authoritieshas far reaching consequences on thedelivery of quality social services.
10 ZIMBABWE NATIONAL BUDGET BRIEF
constitution. Figure 11 shows a trend of fiscal transfers from
central government to local authorities for the period 2016 - 2020.
A simple equity analysis based on per capita allocation showsthat the current allocation formula is biased against urbanauthorities. The allocations for urban based Bulawayo and Harare
Metropolitan Provinces which are the only ones below the mean
per capita allocation of ZWL$181.5, reflect the infrastructure
deficit bias brought in by the current formula. However, with
regards to alignment of higher allocations to high poverty
prevalence areas, the formula to a larger extent compensates for
poverty with the exception of Matabeleland South province which
has the largest per capita allocation despite having only 5.7% of
total poor in the country as shown in Table 6.
UNICEF | JUNE 2020
100.0 99.5 99.8 96 95
0.02 0.5 0.2 4.1 5.1
2016 2017 2018 2019 2020
Percent
National Sub-National
Source: MoFED various Estimates Book of Expenditure
Source: MoFED 2019 & 2020 Estimates Book of Expenditure and author calculation
Source: Author calculation
Figure 11: Central and Local Government spending trends, 2016-2020 (as % of total budget)
The increase in transfers to local tiers of government presentsgreat opportunities for improvement of resources flow to criticalsectors such as health, education and WASH given that most ofthe are provided by local authorities at the local level. However,there is need for sustained advocacy and engagement with thelocal authorities to prioritize these sector key for the developmentof children.
Spending disparities amongst sub-nationalgovernments
Disbursements for the period January to September 2019reflect a bias towards urban authorities. This is despite ruralbased local tiers of government accounting for the largerproportion of the constitutional allocated resources. Allocation forrural based local tiers of government comprising of provincialcouncils and rural district councils account for 74.3% and 83.5%of total planned transfers for 2019 and 2020 respectively. On theother hand, urban based local tiers of government account for25.7% and 16.5% of the constitutional allocation for 2019 and2020 respectively as shown in Table 5. However, as at September2019, only 16% of the rural allocation had been disbursedcompared to 26% for urban areas.
Table 5: IGFTs Spending Disparities
Table 6: Equity dimension of transfers to local tiers of government (% of total)
Entity
2019 Budget (% of total) 2020 Budget (% of total$)
OperationalGrant
CapitalGrant
Total Grant
Outturnto Sept
OperationalGrant
CapitalGrant
TotalGrant
Provincial/Metropolitan Councils
Urban 16% 2% 2% 1% 9% 3% 3%
Rural 84% 12% 14% 0% 41% 14% 17%
Total 100% 13% 16% 1% 50% 17% 20%
Local Authorities
Urban 0% 24% 24% 25% 8% 14% 13%
Rural 0% 62% 60% 16% 42% 69% 67%
Total 0% 87% 84% 41% 50% 83% 80%
Grand Total 100% 100% 100% 42% 100% 100% 100%
ProvincePercentPoorPeople
2020 PerCapita
Allocation(ZWL$)
Proportionof
Allocation
Bulawayo Metropolitan 2.2 124.0 3.2%
Manicaland 16.4 193.4 13.5%
Mashonaland Central 12.0 181.8 9.1%
Mashonaland East 12.2 193.6 11.0%
Mashonaland West 12.6 208.0 13.3%
Matabeleland North 6.5 205.3 6.3%
Matabeleland South 5.7 360.9 10.1%
Midlands 11.8 194.4 13.2%
Masvingo 13.3 198.2 12.2%
Harare Metropolitan 7.3 83.4 8.0%
Sub total 100.0 181.5 100%
6. FINANCING THE NATIONALBUDGET
Financing snapshot
Government revenue is the largest source of budget funding inZimbabwe as shown in Figure 12. Over the years this has
averaged above 60% of total budget financing. However, the
period 2015 – 2018 witnessed massive growth in the proportion
of domestic debt financing of the budget reaching its peak of 52
percent in 2017. This resulted in accumulation of huge domestic
debt estimated at ZWL$7.7 billion as at end September 2019.
External financing has been very low due to the country’s arrears
position while donor grants have been mainly been spent outside
the government system, hence, the budget only recognize a small
proportion of the grants.
VAT being the leading revenue head, expected to contribute 27%
followed by excise duty at 18%. The proportion of corporate and
personal income tax as well as import duty have been declining
over the years as shown in Figure 13 and Figure 14 below.
ZIMBABWE NATIONAL BUDGET BRIEF 11UNICEF | JUNE 2020
74
5445 51
6269
4
4
35
11
22
4152
43
103
0 0 0 0
011
0 0 0 0
2616
2015 2016 2017 2018 2019 2020
Percent
Tax Revenue Non-tax Revenue Domestic Borrowing External Borrowing Donor Grants
Source: MoFED Estimates Book of Expenditure and Outturn Reports
Figure 12: Main sources of financing the national budget, 2015-2020 (as % of total)
21 21 19 15 14 12
26 28 2825 27 27
19 18 1816 19 18
11 10 1314 10 10
9 8 68 9 8
13 16 16 21 21 25
2015 2016 2017 2018 2019 2020
Percent
Personal Income Tax VAT Excise Duty Corporate Income Tax Import Duty Other incl MDA Fees
Source: MoFED Estimates Book of Expenditure and Outturn Reports
Figure 13: Composition of government revenue, 2015-2020 (as % of total)
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020
Percent
Source: MoFED, Estimates Book of Expenditure and Outturn Reports
Figure 14: Revenue as % of GDP
Government revenue
Revenue collections have been declining as a percentage ofGDP from 21% in 2015 to estimated 16% in 2020. This could,
among other causes, be a result of the informalization of the
economy, overall shrinking of the productive sectors, revenue
leakages as well as weakening of the tax collection systems. The
budget revenues for 2020 are estimated at ZWL$58.6 billion, with
Foreign aid
Donor support continues to be channeled outside thegovernment system. The approach has mainly been through
multi-donor trust funds (at least for Health, Education, Child
Protection) managed through UNICEF which has to a certain
degree allowed support to systems strengthening without direct
management of resources by the Government. This is, however,
contrary to the Rome Declaration and its successors, the Paris
Declaration and the Accra Agenda for Action, which all
emphasized the need for country ownership, harmonization of
donor inputs, and alignment against national priorities as
determined by recipient governments. This has been mainly due
to the economic and political context in Zimbabwe which have
resulted in Development Partners not engaging within the agreed
frameworks.
Borrowing
Zimbabwe’s fiscal deficit has been largely financed throughborrowing from domestic financial markets as shown in Figure15. The country’s large public debt burden is a significant
constraint on economic growth. In the absence of access to
international capital markets. This has severely crowded out
12 ZIMBABWE NATIONAL BUDGET BRIEF
resources available for the private sector, thus constraining their
capacity to re-tool and produce for domestic consumption, leading
to inflationary pressures as consumption relies on imports.
7. POLICY AND SYSTEMS
The Government has adopted several strategies to improvepublic finance management. One of the Transitional StabilisationPlan (TSP) Pillars is Macroeconomic Stability and Financial Re-engagement and contains fiscal reform measures that includethe resolve to “Boost the efficient use of Government resourcesthrough timely reporting and strengthening the Public FinanceManagement Systems”. This Strategy was accompanied by aPublic Finance Management (PFM) Roadmap with the objectiveto provide a comprehensive plan to cover the whole PFM cycleincorporating the enhancement of the integrated andcomputerized PFMS.
This process is supported by the PFM Enhancement Project(PFMEP), which is being implemented with multi-donor fundingprovided by the Zimbabwe Reconstruction Fund (ZIMREF)administered by the World Bank. The Project aims at thefollowing: -
• improve financial reporting, strengthen fiscal controls, andenhance financial transparency;
• enhance effectiveness of internal controls and internalaudit;
• enhance accountability through strengthening of externalaudit; and
• strengthen the demand side of transparency andaccountability by enhancing the parliament’s role in PFM.
The project has experienced implementation delays, however,notable improvements resulting from the interventions havebeen observed. The Auditor General now current on AppropriationAudits while Parliament Oversight capacities have beenstrengthening particularly the Public Accounts Committee asobserved by the quality of hearings conducted during 2019.
Budget transparency
UNICEF has also been working with the Ministry of Finance andEconomic Development to improve budget transparency throughthe Open Budget Survey. Since UNICEF collaboration beginningwith the 2017 Results, Zimbabwe has significantly improved itsscores across scoring 49 out of 100 in 2019 from a score of 23 in 2017 on transparency. On Citizen participation in the budgetprocess, the country scored 33 of 100 in 2019 up from a score of9 in 2017. The country is expected to further improve for the 2021OBS given the reforms it has been undertaking since 2019. Someof the reforms include, increased the availability of budgetinformation by publishing the Enacted Budget, Citizens Budget, andthe Mid-Year Fiscal Policy Review Statement online, publishing theIn-Year Reports online in a timely manner among others.
Key Takeaways
l Improved budget transparency has potential to unlockinternational resources through improved donorconfidence in public finance management andpotentially increased credit rating.
UNICEF | JUNE 2020
78100 100 100 100
22
2016 2017 2018 2019 2020
Percent
Domestic Long-term International Commercial International Concessional Domestic Shortterm
00000
Source: MoFED Estimates Book of Expenditure and Outturn Reports
Figure 15: Government borrowing by source, 2016-2020 (as % of total)
The financing of the budget through domestic borrowing usingan overdraft facility created massive imbalances in the financialsector to the extent that maintaining a parity exchange ratebetween the US$ and the local currency could not besustained. Since 2016, the Government rapidly expanded its use
of Treasury Bills to cover pre-existing arrears to the Reserve Bank
of Zimbabwe (RBZ) and other liabilities.
Since 2019, the Government, through fiscal consolidation, has
managed to stabilise domestic debt stock through zero recourse
to RBZ financing, halting of issuance of TBs for ZAMCO and
introduction of auction system for Treasury Bill issuances for
cashflow management. However, external debt stock remains
unsustainably high and continue to accumulate penalties and
arrears.
Key Takeaways
l The continued decline of the share of revenue to GDPrequires Government to further strengthen measures toexpand the tax base, and to ensure efficiency in taxcollection.
l With declining domestic revenue, the Government shouldfocus on creating conditions for reengagement with theinternational community to access loans and grants
l Significant accumulation of domestic debt entails hugedebt service obligations in the future which will crowdout critical service deliver expenditures.
ZIMBABWE NATIONAL BUDGET BRIEF 13UNICEF | JUNE 2020
ANNEX 1:Intergovernmental Fiscal Allocation Formula 2019 – 2020
Vertical Allocation Horizontal Allocation
Tier of GovernmentAllocation of
national revenuesProvincial/Metropolitan Councils Operations Grants
• The Equal Share - accommodates the uniform operating costs ofthe Provincial administrations. Given that the chief purpose of thegrant is to fund these costs, a weighting of 80%;
• Land Area - accommodates the cost differentials for monitoring,planning and coordination (e.g. larger travel costs in largerprovinces). A weighting of 10%;
• Provincial Representation - accommodates differences in directcouncilor-related costs. A weighting of 10%.
Provincial and Local Authority Capital Grant and the LocalGovernment Operations Grant
• Population Index (20%) - Population component based on theproportion of people in the province to the national population andthe number of people in a given Local Authority to the nationalpopulation.
• Poverty Incidence Index (30%) - Poverty prevalence componentbased on the estimated number of people living in poverty pergiven Province or Local Authority to the national poor population.
• Unpaved Roads Index (50%) - Used to approximate infrastructuredeficit. This is based on the proportion of unsurfaced roads pergiven Province or Local Authority to the National a unsurfaced roadnetwork.
Central Government 95%
Local Tiers of Government 5%
Provincial/MetropolitanCouncils
25%
of which operating 5%
of which capital 20%
Local Authorities 75%
of which operating 5%
of which capital 70%
2020 National Budget Brief
June 2020
ZIMBABWE
An Overview Analysis
For further information, please contact:Tawanda ChinembiriChief of Social Policy & ResearchUNICEF ZimbabweEmail: [email protected]: +263 8677 020888
