‘Inflation to drop by year end’. . .2% tax to raise $1,1 billion

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INFLATION is expected to decline by year-end, resulting in the stabilisation of prices, the Minister of Finance and Economic Development, Professor Mthuli Ncube has said.

Prof Ncube made the remarks yesterday while responding to questions from members of the Portfolio Committee on Budget and Finance.

He also said about $1,1 billion will be raised from the 2 percent tax this year, with the funds set to be used to finance key programmes such as social protection interventions for vulnerable groups, infrastructure development and the ongoing reforms.

Prof Ncube said Government was alive to the economic challenges facing the nation, dramatised by unjustified price increases, hence the efforts to resolve them.

“. . . of course I know what is ravaging everyone at the moment, which is inflation.

“By end of year or beginning of next year, we expect inflation to drop and also our expectations are that our interbank market will become more of the reference point in sourcing of currency as opposed to the parallel market which is currently driving inflation,” said Prof Ncube.

Inflation rose to 75,86 percent in April, from 66,80 percent in March due to a wave of price increases as retailers tracked the parallel market for the US dollar.

Government is putting in place measures to cushion employees from economic challenges.

Already, Zupco buses have been introduced at affordable fares and more buses are expected in the country.

“We know how much is needed and how we will acquire them (more buses). This is one of the measures meant to cushion citizens,” said Prof Ncube.

The 2 percent tax has given Government financial latitude to support vulnerable groups and programmes under the economic reform agenda.

“It (2 percent tax) has come in very handy indeed; it has allowed us to meet the impact of the reforms head-on in terms of extra revenues that are needed to pay for extra costs to the economy such as the weather impact of Cyclone Idai and also the reforms themselves.

“We cannot have these (structural) reforms without something on social protection. We are doing everything to make sure the vulnerable are protected,” said Prof Ncube.

Government generated $98,5 million in January; $94,7 million in February; $87,7 million in March and $104,1 million in April, through the tax.

Prof Ncube said given the revenue generation trend, “the target really for the year should be about $1,1 billion”.

Principal Director in the Ministry of Finance, Mr Zvinechimwe Churu, said the 2 percent tax has largely been focused on the reforms, infrastructure and social services.

Dam and road construction are being funded through the tax since they are critical economic enablers for every country.

Radiotherapy machines, health equipment and medicines are also being acquired using proceeds from the tax, which is also earmarked to support social protection programmes in urban areas.

Prof Ncube said the social protection programme has already begun in terms of food distribution in Harare and Bulawayo.

Its scope would be expanded to cash transfers.

“There is a large structure of social protection programmes that are meant to cushion vulnerable citizens from the reform agenda, the drought issues as well as Cyclone Idai,” he said.

The social protection programme has entailed funding the Basic Education Assistance Module (Beam) to the tune of $8 million between January and March; cash transfers of $2 million and food deficit mitigation worth $1,63 million.

The tax has also supported the disabled $0,34 million; the elderly $1,2 million; children in difficult circumstances ($0,33 million); health ($1,05 million) and sustainable livelihoods ($2,4 million).

“If you look at the entire social protection budget so far, we have spent $16,05 million excluding the impact of the cyclone for food procurement,” said Prof Ncube.

Including higher social protection services such as health and education, Government has so far spent just under $100 million.

“So, this is really the nature of the social protection programme. It is really multi-faceted, it is a package. Government is a major player but so are development partners,” said Prof Ncube.

Meanwhile, Government has started making token payments to the World Bank, African Development Bank and European Investment Bank as it implements measures to clear all its arrears, Minister Ncube has said.

He made the remarks while appearing before the Parliamentary Committee on Budget and Finance in Harare yesterday.

The committee wanted to know what measures the Ministry of Finance and Economic Development is undertaking to clear all the arrears owed by Zimbabwe and normalise relations with external creditors.

“We have started making some token payments to the World Bank, African Development Bank and European Investment bank. We started these payments last month and we will carry on making these token payments so that we don’t become complete defaulters, so we are on the correct path,” he said.

“The door to the clearance of arrears is the Staff Monitored Programme (SMP) and I am pleased to report that we have successfully concluded that after three rounds of negotiations and three visits by the International Monetary Fund as well as my three visits to Washington with my team, so we managed to conclude that. The SMP is the only door for arrears clearance and that was made very clear by those whom we owe money.

“If you look at the road map itself, the first order of business was to get the creditors to accept the Transitional Stabilisation Programme (TSP) which they have accepted and have endorsed as a credible economic reform agenda. The second stage was then to be accepted on the SMP and the third stage is to make sure that we meet all our targets as far as our budget is concerned,” he said.

Min Ncube said the Staff Monitored Programme will go through tests which if successful will trigger the clearance of the arrears.

“So what will happen is that the SMP will go through three test dates that is in July, September or October and in December and the final report in January. So we are building up towards arrears clearance at the moment and our hope is that when that report is given, it will trigger clearance of the World Bank and the African Development Bank as well as the European Investment Bank arrears,” he said.

Recently, the IMF said the Staff Monitored Programme between the fund and Zimbabwe will put the country on a sustainable growth trajectory and help build a track record of sound economic policies as it seeks to normalise its relations with external creditors.

The SMP will be implemented from May 2019 to March 2020, with quarterly reviews.

chronicle.co.zw

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