Business Reporter
ECONOMIC analysts have commended planned interventions by the Government to diversify the economy and mitigate potential decline of the country’s gross domestic product (GDP) in 2025 due to various shocks, which would weigh on fiscal revenues and disposable incomes.
Analysts said diversifying the economy was critical to neutralise the potential impact of reduced global commodity prices and other factors on an economy that is heavily dependent on mining.
But economic observers also highlighted the urgent need to explore initiatives for adequate and reliable supply of electricity to drive growth across all key sectors of the economy.
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube (pictured right) revealed the proposed interventions to cushion the economy during a recent 2025 post-Budget meeting.
“To mitigate against the potential decline in GDP, the Government is enhancing agricultural resilience through crop diversification, targeted irrigation investments and access to climate-resilient inputs,” said Minister Ncube.
“Furthermore, measures to diversify the economy from reliance on agriculture and mining to manufacturing and high value-added products will build resilience against external shocks.”
The planned interventions come amid concerns over a potential slowdown in economic growth in 2025.
The Government projects GDP growth of 6 perfect for the year, but simulations show that a 2 percentage point drop to 4 perfect could significantly impact fiscal stability.
While the economy has demonstrated resilience, even against the heavy blow of drought, which decimated agricultural output, domestic and external risks persist, including the impact of growing informalisation and the effect of geopolitical tensions globally.
“Slower economic growth leads to lower income levels and business profits, less consumer spending and consequently, reduced Government tax revenues,” Minister Ncube said.
“This would worsen both the primary and overall budget deficits. Additionally, a drop in GDP and revenue would affect the compensation of employees to revenue ratio, a critical fiscal rule tied to the Government’s commitment to fiscal sustainability.”
To shield the economy from limited energy supply, the Government is prioritising efforts towards improved energy security.
“Ensuring increased domestic electricity production through renewable energy, independent power producers and upgrading existing power generation infrastructure will guarantee a reliable energy supply to productive sectors,” said the Treasury chief.
Economists weighed in on the Government’s planned initiative with mixed views.
Mr Tinevimbo Shava commended the proposed interventions in the energy sector, emphasising the need for swift implementation and constant evaluation of interventions.
“Energy is the backbone of industrial activity. Without reliable power, efforts to boost manufacturing and other high-value sectors will falter. However, these infrastructure projects often face delays, and time is of the essence,” he said.
Mr Sean Makuyana, an economic analyst, highlighted the importance of diversifying revenue sources.
“Relying heavily on agriculture and mining makes the economy vulnerable to climate change and commodity price fluctuations. While diversification into manufacturing is commendable, the Government must also invest in fostering innovation and technology-driven sectors to truly future-proof the economy,” he said.
The Treasury noted that a potential economic slowdown could have far-reaching consequences on fiscal stability.
“A 2-percentage point fall in GDP growth would significantly impact Government tax revenues, worsening both primary and overall deficits,” Minister Ncube noted.
“This would, in turn, raise the debt-to-GDP ratio, adding pressure on public debt servicing levels.”
Another scenario modelled by the Government shows that a 1-percentage point drop in the revenue-to-GDP ratio could similarly strain fiscal balances.
“This would affect the primary balance and overall fiscal balance, while adding pressure to public debt servicing levels, potentially undermining fiscal stability,” added Minister Ncube.
To counteract these risks, according to Minister Ncube, Treasury is also enhancing tax administration systems.
“We will continue to improve tax compliance while reducing collection costs,” the Treasury chief added.
“This approach not only boosts revenue collection but also reduces fiscal risks by creating more stable and predictable revenue streams for the Government.”
While the Government’s plans to mitigate potential GDP shocks are comprehensive, their success hinge on timely execution and effective resource allocation.
As 2025 commences, the ability to maintain fiscal stability in the face of global uncertainties will be critical for sustaining growth and ensuring economic resilience.