11 July 2012

Zimbabwe: Budget Review Deferred

ANNOUNCEMENT of the Mid-Term Fiscal Policy Review statement, scheduled for tomorrow, has been moved to Wednesday next week, an official has said.

Finance Minister Tendai Biti was expected to announce the much-anticipated statement tomorrow but the ministry was said to be finalising a "few issues".

"It has been postponed and the ministry and other stakeholders are finalising a few issues to the mid-term policy statement," said an official with the Finance Ministry yesterday. "It will be announced on July 18 2012," the official said.

In interviews on expectations of the Mid-Term Fiscal Policy Statement, economists said the economy may grow slower than expected, citing macro-economic risks that were more "pronounced".

In the 2012 Budget, Minister Biti projected the gross domestic product - the broadest measure of all the goods and services produced in an economy - would grow by 9,4 percent this year, driven by strong performances in mining and agriculture.

But a slowdown in the performance of some economic sectors, such as agriculture and mining, will force the minister to revise growth forecasts when he presents the Mid-Term Fiscal Policy statement.

Inflation would remain within target as prices have generally remained stable.

Economist Brains Muchemwa said the recent closure of a number banks and the associated systemic risks, would militate against strong growth in the economy.

Moreover, the elections, scheduled for this or next year, would cause an economic growth slowdown.

Mr Muchemwa said politicians generally tended to engage in non-progressive rhetoric in a bid to garner votes.

"The GDP growth forecasts are likely to be reviewed downwards to around 5,4 percent in 2012 and 3,1 percent in 2013 due to a number of wider macro-economic risks that are getting more pronounced in the economy," he said.

Moreover, the current slowdown in lending by financial institutions in the face of increasing credit risks had resulted in diminishing growth in credit creation.

This has affected the ability of the private sector to keep revenues growing at an increasing pace.

Zimbabwe National Chamber of Commerce economist Mr Kipson Gundani said the 9,4 percent growth forecast was based on the assumption that the economy would secure lines of credit to give impetus to industry as well as improved utility performances.

"The 9,4 percent target can no longer be achieved," said Mr Gundani. "We still have challenges with utility service delivery and there is little fresh money coming in to recapitalise the industry. The minister may be forced to cut this year's growth targets to about 5,5 percent."

A recent report by Invictus Securities projected the gross domestic product growth rate at 4,5 percent, largely due to the poor agricultural season.

In March this year, Minister Biti said the first quarter of the year had been an "extremely" difficult period, warning that major projections would be revised downwards.

He said the Government had failed to meet revenue targets due to underperformance of diamond revenue.

Revenues in the first three months of this year were US$771 million, compared with a target of US$870 million.

The Government generated US$30,5 million from diamond sales from Marange in the first quarter of this year, far below the target of US$123 million.

Three weeks ago, Minister Biti warned of a revision of his US$4 billion 2012 Budget, saying the major reason was the underperformance of the revenue targets.

He said between January and May 2012, Government failed to meet the revenue target by US $194 million.

"The Government has since noted a disappointing contribution from the diamond sector," he said, "and little can be done to improve revenue collection, especially considering that the minister has already hiked mining sector royalties."

"There is therefore little to tweak on other revenue heads and the growth of such revenues is dependent on the wider economy and considering our Government expenditure that is heavily skewed towards recurrent expenditure, the minister has very few options to stimulate growth in the economy."

Mr Muchemwa said the inflation target was likely to be maintained around 5 percent since the multiple-currency environment continues to put a check on the major drivers of inflation, especially the cost-push drivers on the food basket that constitute the biggest portion of our inflation index.

Economic growth rates have averaged 8 percent since dollarisation.

It registered its first growth in 2009, following successive recession that saw the economy contracting by 40 percent between 2001 and 2008.

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