Anchoring Macroeconomic Stability Through Fiscal Policy in Zimbabwe
The Government of Zimbabwe recently embarked upon an important set of reforms aimed to durably restore Zimbabwe's macroeconomic stability. To secure these reforms, it is key for the Treasury to identify ways to strengthen its fiscal policy to help move Zimbabwe towards a sustainable medium-term fiscal pathway, according to the new Public Finance Review (PFR) released by the World Bank today.
The PFR titled ' Anchoring Macroeconomic Stability through Fiscal Policy ' considers the performance of Zimbabwe's public finances between 2019 and 2023. In addition, it supports the Government of Zimbabwe in its fiscal consolidation efforts by identifying policy options to improve expenditure and revenue mobilization to create fiscal space, improve efficiency, and strengthen equity considerations. This can help move Zimbabwe towards a more sustainable medium-term fiscal pathway, stabilize the macroeconomic environment, and support sustainable economic growth and job creation.
"The PFR emphasizes the World Bank's commitment to providing timely and responsive support to the Government of Zimbabwe and is a testament to our strong and ongoing partnership. This comprehensive analysis of public finance will guide our efforts to assist the government in improving domestic revenue mobilization, enhancing efficiency, and ensuring pro-poor outcomes," said Eneida Fernandes, World Bank Country Manager for Zimbabwe.
The PFR recommends several measures to create fiscal space and return Zimbabwe's fiscal accounts to a prudent trajectory. The report highlights that stabilizing prices and eliminating exchange rate distortions can significantly and swiftly boost government revenue. The World Bank's analysis indicates that Zimbabwe's treasury lost over $4.5 billion between 2020 and 2023 due to monetary distortions. Enhancing price stability could help recover inflation-related tax losses promptly. Potential reforms to increase tax revenue efficiently and equitably include streamlining corporate tax incentives, strengthening mining, property and wealth taxation, aligning health excise taxes in line with international standards, and improving tax administration using digital technologies.
Improving the efficiency of public spending is essential for supporting fiscal consolidation and achieving long-term sustainable and inclusive growth. There is potential to improve the government's allocative efficiency to improve value-for-money in areas such as health care and capital investments. Improvements in procurement systems, including the use of e-Procurement, also present significant opportunities for efficiency savings. Efficiency in public services administration is also key, as the Government of Zimbabwe's jobs evaluation report suggests there are opportunities to streamline the civil service. The progressivity of expenditure policy can also be improved through more and better targeted spending on social protection. The operationalization of a national 'social registry' could help improve targeting of Zimbabwe's current social protection systems and help improve climate resilience.
The PFR shows that fiscal policy can be a critical anchor for macroeconomic stability that can ensure a credible and efficient national budget and assist a stable and competitive currency. Jointly, this would lead to higher growth, major poverty reduction, and a major step toward achieving Zimbabwe's development objectives.
Distributed by APO Group on behalf of The World Bank Group.
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