• Q1 net revenue outturn at ZW$88.26 billion against ZW$86.52 target
• FY2021 total revenue target was set at ZW$390.8 billion
• Expected economic rebound to increase ZIMRA collections

In November 2020, finance minister Professor Mthuli Ncube presented his 2021 National Budget with a spending ceiling of ZW$421.6 billion. Of this amount, ZWL$390.8 billion was projected to come from revenue collections leaving a deficit of ZWL$30.8 billion to be financed entirely through domestic borrowing. The Minister also projected the economy to recover by 7.4% in 2021 as the exchange rate and price continues stabilizing throughout the year.

The Ministry of Finance and Economic Development (MoFED)’s revenue projections left many analysts perplexed at the time of budget presentation as the economy was in the middle of the COVID-19 pandemic. The main revenue head contributors, companies and individuals, were seriously affected because of lockdowns and curfews.

Also, the government provided minimal fiscal stimulus to help the economy because of limited fiscal space. In economics, fiscal space can be defined as a room in a government’s budget that allows it to provide resources for the desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy. Fiscal space can be created by raising taxes, borrowing, foregoing lower priority expenditure, or securing external grants among other initiatives.

Fast forward to 2021, the latest statistics are showing revenue collections outstripping set targets. Zimbabwe Revenue Authority (ZIMRA) has released the first quarter of 2021 (Q1:21) revenue collections which show gross collections surging 4.73% above target. Gross collections came in at ZW$90.62 billion against the MoFED target of ZW$86.52 billion. After deducting refunds of about ZW$2.35 billion, net collections came in at ZW$88.26 billion -a positive variance of 2.01 percent.

As always, companies were the leading revenue head contributing 19.98 percent followed by individuals at 17.89 percent, and value added tax (VAT) on local sales at 13.48 percent. Also, worth mentioning were Excise duty contributing 12.51 percent, VAT on imports at 9.76 percent, and the intermediated mobile money transfer tax (IMMT) famously known as ‘the 2% tax’ which contributed 8.17%.

The semi-autonomous entity, ZIMRA, attributed this stellar Q1:21 performance to relaxation of lockdown restrictions late in the quarter which assisted corporates to increase productivity leading to improved revenue collections. Employers adjusted salaries and wages upwards in line with increasing inflation at the beginning of Q1 and this enhanced nominal incomes. However, VAT on local sales misfired as consumption by both corporates and individuals was negatively affected by the national lockdown. Consumption was focused towards basic commodities, which are either exempt or zero rated. Also, customs and excise duties were below target thanks to closure of ports of entry to the general public.

In my view, the MoFED revenue projections are on track to meet budgeted figure. Here is why?

Typically, Q1 revenue collections are low relative to other quarters. In Q1, individual spending on consumption is low as money is budgeted mostly for school fees. Also, it is a transition from high spending quarter, Q4. So, people generally spend less in the early months of the year as they try to smoothen their consumption patterns. This has a negative trickle-down effect on many revenue heads thereby reducing ZIMRA net collections. Despite this fact, Q1:21 collections crossed the ZW$80 billion marks and because of that, I am confident that the next quarters will be in excess of ZW$90 billion, ceteris paribus.

Also, the domestic economy is gradually recovering from the pandemic as attested by some corporate results released to date which are showing improving sales volume on average. The Zimbabwean economy is projected to rebound this year from previous back-to-back severe recessions. Agriculture and mining are the key sectors anchoring this growth.

As for Agric, the country has received normal to above-normal rainfall across the country with the Zimbabwe National Water Authority (ZINWA) reporting the average national dam level at 96 percent, the highest since 1974. A country which witnessed consecutive droughts since 2018 is on course to attain a bumper harvest this year with initial estimates putting staple maize at 2.7 million tons. If realized, this will be the second-best season after 1984 since the nation attained independence. Pastures have also improved greatly, a boost for animal husbandry. A stellar performance of the Agric sector is key for ZIMRA and the nation in general as it employs between 60-70 percent of the population, supplying about 60 percent of raw materials used in industrial production, contributing 17 percent of national gross domestic product (GDP) and at least 30 percent to export earnings.

Furthermore, another key sector, the mining sector, is on course for its best year. Many commodity prices are recovering from last year’s historical lows thanks to the COVID-19 vaccination campaign gaining momentum worldwide as well as increased commodity demand from major economies especially the world’s top commodity importer, China. The pledge made by the United States, the European Union, and China on the sidelines of the recently concluded Leaders Climate Summit held virtually in the U.S to cut carbon emissions by greater margins by 2050 is also driving demand and further fueling prices for minerals such as nickel and platinum group of minerals (PGMs). Last year, according to Zimbabwe National Statistics Agency (ZIMSTAT), nickel was Zimbabwe’s top export earner ahead of gold and tobacco.

This expected economic rebound will lead to increased employment of resources (production) and aggregate demand thereby resulting in increased revenue for ZIMRA. Also, I do not expect the ports of entry to remain closed throughout 2021 as many nations are targeting to attain herd immunity at least by the start of summer. The EU Parliament is set to vote for use of ‘vaccine passports’ to re-open tourism to international travelers. As ports of entry re-open, customs and excise duty will increase gradually. 

In my view, the revenue side will meet set targets as they were initially stated in the budget. However, it remains to be seen if the pending increase in fiscal spending will not jeopardize the stability of the economy. For instance, the government has agreed to offer its workers a staggered 75 percent salary increment. Also, via Grain Marketing Board, Treasury is set to spend about ZW$60 billion purchasing Agric produce from farmers.

From an outsider’s perspective, what I know at the moment is that these pending transactions were not budgeted. This raises public finance management issues and over the years, public finance mismanagement drove Zimbabwe’s public debt to the unsustainable territory. In the next column, I will explore the debt situation.