Strengthening Fiscal Policy to Anchor Zimbabwe's Macroeconomic Stability

According to the newly released Public Finance Review (PFR) by the World Bank, titled Anchoring Macroeconomic Stability through Fiscal Policy, strengthening Zimbabwe's public finances is imperative for economic resilience.

The Government of Zimbabwe has embarked on a crucial set of economic reforms aimed at ensuring long-term macroeconomic stability. To solidify these reforms, the Treasury must enhance fiscal policy, creating a sustainable medium-term fiscal trajectory. According to the newly released Public Finance Review (PFR) by the World Bank, titled Anchoring Macroeconomic Stability through Fiscal Policy, strengthening Zimbabwe's public finances is imperative for economic resilience.

Assessing Zimbabwe’s Fiscal Performance (2019-2023)

The PFR provides an in-depth analysis of Zimbabwe’s public finances over the period from 2019 to 2023. It supports the government’s fiscal consolidation agenda by identifying key policy measures to optimize expenditure and revenue mobilization, creating the necessary fiscal space for sustainable economic growth, job creation, and poverty reduction.

Eneida Fernandes, the World Bank Country Manager for Zimbabwe, underscored the importance of the report, stating, "The PFR reaffirms the World Bank’s commitment to supporting Zimbabwe with timely and responsive policy guidance. This analysis will help the government improve domestic revenue collection, enhance efficiency, and promote pro-poor fiscal policies."

Key Recommendations for Fiscal Stability

The PFR proposes several measures aimed at enhancing fiscal sustainability and stabilizing Zimbabwe’s economy:

1. Stabilizing Prices and Addressing Exchange Rate Distortions: The report highlights that Zimbabwe’s treasury lost over $4.5 billion between 2020 and 2023 due to monetary distortions. Correcting exchange rate misalignments and stabilizing inflation would help recover lost revenue.

2. Enhancing Revenue Mobilization: The World Bank suggests key reforms to strengthen revenue collection efficiently and equitably, including:

   • Streamlining corporate tax incentives to prevent unnecessary revenue leakage.
   • Strengthening taxation on mining, property, and wealth sectors.
   • Aligning health excise taxes with international best practices.
   • Improving tax administration through digital technology adoption.

3. Improving Public Expenditure Efficiency:

   • Enhancing value-for-money in public services such as healthcare and infrastructure investment.
   • Implementing e-Procurement systems to reduce inefficiencies in government procurement.
   • Streamlining the civil service based on insights from the Government of Zimbabwe’s job evaluation report.

4. Enhancing Social Protection and Climate Resilience:

   • Strengthening the targeting of social spending through a national social registry to improve support for vulnerable populations.
   • Increasing investments in social safety nets to enhance economic resilience and poverty reduction.

Fiscal Policy as the Foundation for Sustainable Growth

The PFR underscores that a well-designed fiscal policy can serve as a crucial anchor for macroeconomic stability, ensuring a credible national budget and fostering a competitive currency environment. These measures will collectively drive higher economic growth, substantial poverty reduction, and progress toward Zimbabwe’s development goals.

By implementing these reforms, Zimbabwe can restore confidence in its fiscal and economic policies, paving the way for sustainable prosperity and resilience in the face of economic challenges.