'Tax reforms to rescue debt-distressed Zimbabwe'

'Tax reforms to rescue debt-distressed Zimbabwe'
Published: 24 March 2019 (188 Views)
Taxation reforms and improvement in non-tax revenue will extricate Zimbabwe from the debt trap, a new report has shown.

In its flagship report released Saturday, the Economic Commission for Africa (ECA) said slowing economic growth, deteriorating terms of trade (as commodity prices fell), loosening fiscal policies and re-evaluation of cross-border risks in international financial markets have made debt servicing by African governments more difficult.

Zimbabwe, alongside Chad, Mozambique, South Sudan and Sudan, are in debt distress. Burundi, Cameroon, Cabo Verde, Central Africa Republic, Djibouti, Ethiopia, Ghana, Mauritania, São Tomé and Zambia have a high risk of debt distress.

The Economic Report on Africa 2019 said the common denominator facing the 16 African countries in debt distress or high risk of debt distress has been low government revenue.  The report government revenue to GDP was below 20 percent in most countries including Sudan, Chad, Zimbabwe, Ghana, and Ethiopia.

"Those countries will remain in the debt trap unless something is done to raise revenue through tax reforms, non-tax revenue, enhanced tax administration and reduced tax evasion and avoidance particularly in the natural resources sector," said the report themed, Fiscal Policy for Financing Sustainable Development in Africa.

Zimbabwe projects to get $162 million in non-tax revenue in 2019.

It said the potential to boost government revenue is huge, ranging from 12 percent to 20 percent with such an increase to pull the 16 countries out of the debt trap.

The report said resource-rich countries were the worst performers in terms of volatility due to their almost exclusive reliance on resource rents: when commodity prices fall, so does non-tax revenue. Some oil-importing countries, including Ethiopia and Tanzania, also performed poorly in non-tax revenue collection, it said.

"At least some volatility may arise from poor design and management of non-tax revenue as a policy tool. Algeria, Comoros, Cabo Verde, Mozambique, Morocco, Rwanda, Senegal and Zambia took advantage of high growth in the past decade to increase non-tax revenue. By contrast, Cameroon, Gabon, Ghana, Guinea, Nigeria and Zimbabwe failed to mobilize expected non-tax revenue due to poor fiscal discipline," the report said.

In his interventions at the launch of the report, Ahmed Kamaly Egypt's deputy minister of Planning in the Ministry of Planning, Monitoring and Administrative Reforms said there was need to think about innovative methods of finance such as blended finance, public private partnerships and sovereign funds. Kamaly said structural transformation was imperative for countries to change the structure of their economies using fiscal policy as a vehicle.

ECA executive secretary Vera Songwe said bettering tax collection will help "power Africa and we can build the Cape to Cairo road".

"If we make the effort, we have the resources to power our economies. We are a decade away from Agenda 2063. We must get there with the private sector," Songwe said.

Zimbabwe is unable to borrow from multilateral financial institutions due to an external debt overhang of US$7,7 billion with Harare now pushing for debt rescheduling as it has no resources to extinguish the debt. Unable to borrow from multilateral institutions due to a debt overhang, Finance minister Mthuli Ncube has put his spotlight on cutting expenditure and undertake domestic resources mobilisation through a raft of taxation such as the 2 percent Intermediated Transfer Tax on transactions above $10. Ncube said this week government expects to raise US$350 million from the sale of two telecom firms NetOne and TelOne.

- businesstimes

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