Unpacking the 2025 National Budget

Persistence Gwanyanya-Correspondent

As external influences increasingly weigh on Zimbabwe’s economic recovery efforts, Treasury, through the 2025 National Budget presented by Prof Mthuli Ncube, intensifies efforts to build economic resilience and deepen structural transformation, which is comforting.

Reflecting on the journey we have travelled since we embarked on economic reforms in October 2018, under the auspices of Vision 2030, it is tempting to suggest that Zimbabwe’s economy could have done much better had it not been of increased incidences of external factors such as cyclones, drought, COVID-19, depressed global commodity prices and geopolitical tensions.

It would appear unfathomable that Zimbabwe’s agriculture sector registered positive cumulative growth since 2018 despite eight incidences of cyclones and drought of various intensities and effects.

Even more inscrutable is that the country managed to register cumulative growth of 10,8 percent since 2018 despite the highlighted external factors.

The progress we have made so far gives us hope of what we are capable of achieving as an economy. Our agricultural sector is poised for a rebound, inspired by the turnaround of the wheat sub-sector.

After dropping to historic low production levels of three months’ supply post-land reform programme in 1999, wheat production is expected to reach 600 000 tonnes this year, as we continue to achieve surplus production.

With the increased financial support towards the agriculture sector especially in areas of irrigation infrastructure, climate proofing, agriculture productivity social protection scheme notably Pfumvudza/Intwasa programme, a return of the sector to its former glory is quite possible. 

As the country works towards target increase of irrigable land to 496 000ha from the current 217 000ha, of course through the support of Treasury, turnaround in production of cereals especially maize corn quite is possible.

Maize production has been fluctuating since 2018, peaking at 2,717 million tonnes in 2021 before dropping to a historic low of 573 000 metric tonnes in 2024 on account of El Nino-induced drought. This only emphasises the need to prioritise progress towards the planned increase in irrigable land. Continued support for the small holder farmers under Pfumvudza/Intwasa programme is commendable to guarantee good security especially to vulnerable sections of the economy. 

So far Treasury has supported 1,1 million ha of cereals, cotton, oilseeds and pulses for the 2025 farming season, which is commendable.

Reflecting the importance of the agriculture sector, the projected contraction of agriculture sector by 15 percent this year is seen as the key driver of economic slowdown from 5,3 percent in 2023 to 2 percent in 2024. Going forward, with the projection of normal to above normal rainfall, the agriculture sector is expected to grow by 12,8 percent, supporting the projected growth of 6 percent in 2025.

Whilst the aggression on infrastructure development especially road construction, typified by expenditure overrun in 2024 is seen as weighing down stability, it can also be viewed as signalling improved prospects for the Zimbabwe economy. 

Arguably, this has supported the attraction of investment in mainly areas of mining, agriculture, construction and real estate, among others.

I shudder to think where we would have been as an economy had we not invested in the Hwange Unit 7 and 8 expansions, which is now adding 614MW to the current production of 937MW. 

The case of Zambia, which is now struggling with up to 21 hours of load shedding as water in Kariba Dam, is said to be at its lowest since the last 60 years, is telling. Zimbabwe is now generating less than 115MW out of installed capacity of 1 050 MW from Kariba Dam. Clearly, electricity challenges pose serious risk to the power intensive, mining and manufacturing sectors.

Demonstrating its resilience, the mining sector is expected to grow by 2,3 percent in 2024, despite depressed international mineral prices, especially of PGMs. Driving this performance is increased production volumes, reflecting growth in investment. Going forward, Treasury is projecting mining sector growth of 5,8 percent as mineral prices recover globally. 

As indicated earlier, the capacity of mining sector to grow will be influenced by the power situation. Whilst there has been increased appetite by Independent Power Producers (IPP) to invest in solar energy, the take-off on approved projects is not encouraging. Out of more than 1 000MW from 110 licenced IPPs, only 74MW have taken off, which emphasises the need to improve the ease of doing business so as to incentivise investment in power. Worryingly, the much-needed recovery of the manufacturing sector is under threat from power challenges. 

To re-industrialise, NDS1 targets more than doubling of Zimbabwe’s share of manufacturing sector to GDP to 25 percent from the current level of 10,9 percent. Industrialisation is the secret to economic turnaround in most successful economies today. China, whose share of manufacturing sector to GDP peaked at 50 percent to become the fastest growing economy, averaging more than 10 percent annum in first decade of the new millennium is a typical example.

It appears authorities are bearish about the speed of recovery of the manufacturing sector in the short term, reflecting deep seated structural challenges typified by high levels informalisation and confidence challenges and among others. 

These challenges largely trace from the journey we travelled as an economy, mainly the experience of hyperinflation. The recently launched Zimbabwe Reconstruction and Growth Plan (ZIRGP) 2024-25, which seeks to immediately address challenges constraining industrial performance projects average growth of 2 percent, which is in line with expected growth of 2 and 3.1 percent this and next year. 

To support ZIRGP’s efforts to prepare the industry for NDS2, it was necessary for Treasury to allocate ZiG550,5 million towards this project.

However, reflecting the renewed appetite for Zimbabwe especially by foreigners, we are witnessing the emergence of new, modern and sophisticated industry, which gives hope for faster recovery of the manufacturing sector beyond 2025. 

Continued progress in infrastructure development is seen as attracting more players in this emerging industry, which is hoped to push away informal players.

Without doubt, the US$1,5 billion Dinson Iron and Steel Company (DISCO Steel) plant is a game changer for Zimbabwe and the region. 

This plant, which is touted as the biggest in Africa, will definitely change regional economics. It’s advisable for Southern Africa or even Africa at large to establish a steel union basing on the output from DISCO. That’s how we can make global impact.

In the domestic economy, the DISCO plant, which has already started producing is seen as playing a critical role in resolving our macro-economic challenges mainly unemployment, budget balance, BOP challenges and informalisation. Importantly, DISCO investment invokes some sense of urgency to revitalise our rail system. Whilst it’s comforting that Treasury continues to support the revival of our rail system by Treasury, the financial requirements for this project a quite significant that PPPs, strategic alliances, long term loans facilities are seen as the most appropriate to turn around the system. 

We understand that Mutapa Investment Fund (MIF) is working on suitable structures to unlock funding for our rail system, which is commendable.

Given the amount of money needed to rebuild our infrastructure, resolving the country’s debt challenge has become urgent. Zimbabwe’s total stock of debt as at September 30, 2024 stood at US$21,1 billion, with US$12,3 billion (58,29 percent) being external debt and US$8,7 billion, being domestic debt. 

Arrears and penalties amounted to US$10,434 billion and out of this US$2,717 billion is from International Financial institutions namely World Bank, European Investment Bank and African Development Bank (AfDB), which has negatively affected the country’s credit standing and therefore access to concessionary debt.

Worryingly, this has resulted in dependence on short term funding sources, mainly budget, for infrastructure development, which is inappropriate as it drives currency instability. 

As such, the progress on the sixth high level structured negotiations for arrears clearance and debt resolution held on the 25th of November gives us confidence of a solution on sight. 

It’s encouraging that the meeting reported positive progress on reforms in the three areas of economic growth and stability, governance and land tenure, which underpin our debt resolution strategy. Importantly supporting the debt resolution strategy within the context of economic growth and stability cluster is management of fiscal deficits and monetisation thereof. 

It’s comforting to note that the Government has so far managed to live within its commitment to maintaining budget deficit within the SADC convergence target of 3 percent, save for 2023, when the country recorded a deficit of 6,1 percent ostensibly due to depressed global commodity prices and tight global, economic and financial conditions. In 2024, Budget deficit of 1,4 percent is projected despite occurrence of devastating El Nino-induced drought. This deficit is expected from total revenue of ZiG10,7 billion against expenditure of ZiG119,97 billion. The progress in the last 9 months gives us confidence that this target is achievable. 

The country recorded revenue of ZiG62,4 billion against expenditure of ZiG66,54 billion resulting in a Budget deficit of ZiG4,1 billion or 4,14 percent.

Going forward, Budget deficit is expected to narrow to US$6,1 billion or 0,1 percent of GDP as expenditure are expected to be managed at ZiG276,4 billion against projected revenue of ZiG270,3 billion. 

Persistence Gwanyanya is an Economist, Chartered Banker, Trade Finance Specialist and member of RBZ Monetary Policy Committee. He is also the CEO and Vision Consultant of Bullion Group International. He writes in his personal capacity. For feedback email persgwa@bulliongroup.co.zw