The Sunday News
Dr Bongani Ngwenya
Preamble:
AID for domestic revenue mobilisation is a key driving force behind countries’ efforts to achieve sustainable economic development.
With the past political economy that was characterised by the absence of re-engagement with the international community that was regarded as enemies and agents for regime change, official foreign aid continued eluding the country’s budget.
The lack of re-engagement with the international community also saw the country shut out from accessing external borrowing in order to finance its budget deficit. The country was left with no choice but to exclusively rely on its domestic resource mobilisation, mainly through taxation to finance its budget deficit.
As companies continued closing down and the formal economy in formalising, domestic revenues shrunk, reducing the country’s capacity to service its debt arrears, meant that Zimbabwe had to contend with a heavy debt overhang. While revenues continued being severely strained as they progressively declined, expenditures remained high causing a further strain on the country’s budget deficit.
The budget deficit was exacerbated by budget overruns caused by the non-budgeted expenditure such as drought relief as drought occurred in the country.
The deficit in the budget continued to create the finance gap that in the absence of foreign aid and external borrowings the Government increasingly resorted to domestic borrowing to finance this gap through treasury bills that were now becoming some form of surrogate currency used to settle Government expenditure.
The past political economy lacked the political will to revert to the discipline of the cash budget approach in order to contain expenditures, especially employment costs, and refocus the fiscal expenditures towards social services and capital or infrastructural development expenditures.
The political economy was also characterised by the phenomenon of being long on planning and short on implementation coupled with police incoherences and inconsistencies.
Need for aid for domestic revenue mobilisation for sustainable economic development. Increasing domestic revenue mobilisation is therefore an important priority for such countries like Zimbabwe, with the supporting role of the international multilateral financial lenders.
The international community re-engagement drive by the new political economy depending on the success of the end of July national elections is expected to pave the much needed way for the international community support.
This election’s outcome is standing between the success and failure of the newly found Zimbabwean political economy. The outcome of a free and fair election would pave away for “aid for domestic revenue mobilisation” that Zimbabwe so desperately needs for its economic development.
Aid for domestic revenue mobilisation is one mechanism for providing assistance at the country level, by the multi-lateral donor agents. This is the instrument by which the international community support countries to overcome some of the challenges that they face to increasing domestic revenues.
Aid for domestic revenue mobilisation has become an increasingly significant financing instrument for the nation’s development agendas for their sustainable development goals, famously known as the SDGs, or the millennium development goals for example.
The instrument has been driven by recognition of the need for mobilisation of significantly larger volumes of finance, from multiple sources, in order to meet the scale of the development agendas.
Zimbabwe last received meaningful aid towards domestic revenue mobilisation when the country embarked on the economic structural adjustment programme (Esap). The instrument places the participant countries on a credit worthiness position and footing to leverage other sources of finance, and to be able to make calls about their needs for greater revenues mobilisation.
The amount of aid directed towards domestic revenue mobilisation related international initiatives has increased significantly in recent years, peaking at billions of US dollars in 2013, and accounting for 17 percent of core aid for domestic revenue mobilisation earmarked for African countries.
Zimbabwe has been losing out from benefiting from this aid because of its past political economy. The aid for domestic revenue mobilisation includes funding for initiatives such as the IMF Tax Policy and Administration Topical Trust Fund, which provides support for over 20 countries, and the African Tax Administration Forum, which aims to share best practices among African tax administrations.
The aims of the aid is to finance the capacity building initiatives of mainly the African countries to help develop their domestic revenue mobilisation regimes (tax administration) as the main domestic revenue mobilisation instruments.
Many of the countries that face the greatest challenge in meeting their sustainable development goals are also those where domestic revenues are lowest such as Zimbabwe. Aid for domestic revenue mobilisation is one mechanism that international actors use to support these countries to increase revenue collection.
Yet the criteria for targeting aid for domestic revenue mobilisation extend beyond just prioritising the countries where revenues are lowest, and encompassing an array of assistance that can address differing needs and contexts. Donors may wish to prioritise the countries with the greatest potential to grow revenues, where the demand for assistance and political will to implement changes are greatest.
The new Zimbabwe after successfully delivering a free and fair election in July this year has a potential of attracting the aid for domestic revenue mobilisation as the new Government has already demonstrated a positive potential for political will to implement necessary reforms, a phenomenon that was alien to the past political economy.
Nearly half of the aid for domestic revenue mobilisation goes to countries that are classified as least developed countries. Currently, much of this aid has been accounted for by the three largest recipients in this category — Tanzania, Afghanistan and Mozambique.
The past political economy has run the country into a least developed country status or junk from a developing country status.
Apart from benefiting from the aid for domestic revenue mobilisation in the area of improving the country’s domestic revenue generation capacity, Zimbabwe would also stand a chance of receiving aid for improving specific aspects of revenue mobilisation such as installing new IT or data collection systems, or improving policy or enforcement around a particular type of taxation regime in the future, should the country decide to do so.
In conclusion, Zimbabwe has been struggling to balance its budget for a long time now. The budget deficit has become unsustainable for the economic development of the country.
The ultimate goal of aid for domestic revenue mobilisation is helping countries such as Zimbabwe overcome the constraints to growing revenue mobilisation in order to increase their fiscal space and manage their budget deficits.
Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a post-doctoral Research Fellow and can be contacted on [email protected]
