The Herald (Harare)

19 July 2012

Zimbabwe: No Joy for Civil Servants As Biti Slashes Budget 10 Percent

THERE is no hope for civil servants salary increment this year as Finance Minister Tendai Biti yesterday slashed the 2012 National Budget by about 10 percent to US$3,64 billion, citing poor revenue inflows.

The civil servants had given the Government up to the end of this month to review their pay or risk devastating strike.

Presenting his Mid-Term Fiscal Policy Statement in Parliament yesterday, Minister Biti said

Government missed its revenue target by US$244 million by end of June with a large chunk being shortfalls on diamond dividends of US$229,3 million.

The economic growth forecast was also revised from 9,4 percent to 5,6 percent due to revenue shortfalls and poor performance of agriculture.

The wage bill consumed 70 percent of its original US$1,073 billion budget allocation.

Total expenditure for the six months to June amounted to US$1,565 billion.

"Indeed, even in the absence of such reviews, Government faces the real danger of defaulting on salary payments. Hence, we need not take the current monthly payments for granted but seriously appreciate the limited fiscal space for wage adjustments," Minister Biti said.

Agriculture, that was initially expected to register 11,6 percent growth, is now expected to decline to minus 5,8 percent. Poor harvests were characterised by the late onset and erratic rainfall and long dry spells from the end of December 2011.

Mining will, however, grow to 16,7 percent from an initial forecast of 15,9 percent.

"Contrary to our 2012 gross domestic product growth projections of 9,4 percent, indications are that the economy will shed almost 4 percentage points to grow by only 5,6 percent, which also falls short of the Medium Term Plan annual average target of 7,1 percent," said Minister Biti.

The outlook is, however, not totally bleak as inflation will remain within target.

The anticipated weakening of the South African rand against the United States dollar and softening in international fuel prices would stabilise inflation.

To enhance revenue inflows, Minister Biti proposed to increase customs duty on flour imports from 5 percent to 20 percent to promote the local milling industry and manufacture of stockfeeds.

He also proposed to raise excise duty on diesel and petrol from 16 and 20 cents per litre to 20 and 25 cents per litre, respectively, with effect from August 1.

"This measure is expected to raise additional revenue of about US$20 million," he said.

However, the increase in the excise duty rate should not translate into higher prices of diesel and petrol in view of the decline in the price of crude oil from US$124 per barrel in April 2012 to US$101 per barrel as at 13 July.

Government will also sell some of its shareholding in major companies.

Total exports for the period January to June 2012 rose by 45 percent to US$1,6 billion from US$1,1 billion realised in the same period last week. Mineral exports accounted for the bulk at 73 percent.

Minister Biti said imports have continued to grow much faster, reflecting increased demand for equipment and raw materials for resuscitating industries.

He said mining fees would be reviewed to promote investment and growth.

In preparation of the next farming season and beyond, farmers, with the support of Government, the banking sector, promoters of contract farming and development partners would need to mobilise resources.

This would be within the context of the Comprehensive Agriculture Policy, which puts annual financial requirements for agriculture at US$2,4 billion.

"However, given the under-performance of the budget during the first half of the year and the anticipated lower revenues during the last half of the year, a larger role of other parties - the farmers themselves, the banking sector and development partners - will be required," said the minister.

He said issues that needed to be urgently addressed to aid economic recovery were the country's politics, attracting foreign direct investment, leases and restoration of markets as well as the perennial power shortages.

Minister Biti said the Zimbabwe Investment Authority would soon be aligned with the Indigenisation and Empowerment Regulations to address investors' concerns to enable the country to attract meaningful investment into the country without undermining the empowerment initiatives.

In the six months to June, domestic debt and arrears by Government ministries to service providers continued to rise, further compromising service delivery.

Debts and arrears reached US$179 million by end of June, way above the budgeted US$51,4 million.

To reduce local authorities and inter-parastatal net indebtedness, clearance of arrears to these entities will be directed to the respective parastatal or local authority creditors.

Economists yesterday said the mid-term fiscal policy review lacks "substance" on key issues affecting the economy.

Harare-based economist, Mr Takunda Mugaga, said the minister should have "gone beyond the basics".

"This was a disappointing budget review, devoid of any real substance. It was silent on key issues that should drive the economy. For instance it relegated the significance of the mining sector to the economy, there has been no effort to improve the Interbank market, no additional capitalisation of the Reserve Bank of Zimbabwe, no clear strategy on debt clearance and no investment in power generation," he said.

Mr Mugaga said the mid-term fiscal review went against the grain of the Government's stated objective of leveraging the country's potential in order to attain economic growth.

"The budget is largely meant to support everyday expenditure, which means we will continue to fare with a liquidity crunch."

In view of the myriad of challenges facing the economy, Zimbabweans were expecting Minister Biti to announce specific measures to address issues such as investment in the country's energy infrastructure.

There is also agriculture financing, management and streamlining of the civil servants wage bill, capitalisation of the central bank, automation of tax administration services and a review of the country's mineral taxation model among other areas.

Other observers contend that the minister particularly "lost the script" on agriculture.

Another economist who asked not to be named blamed Minister Biti for "killing agriculture by refusing to fund the sector".

He said had the minister given priority to agriculture, the country's growth targets would have been on course.

"It is strange that (Minister) Biti saw it fit to set aside US$100 million for the census and had enough left over to invest in a failed bank but had nothing to offer to wheat farmers.

"There is no way that we can achieve the set growth targets without substantial investment in agriculture. Let's face it, agriculture at its prime employed lots of people in this country and was effectively the backbone of the economy.

"Various other sectors were feeding off the buoyancy of this sector and now you say you do not have any resources to fund agriculture, obviously he has lost it."

The economist added that Minister Biti had effectively killed the goose that lays the golden egg and for as long as his stance did not change, there is no hope for the turnaround of this economy.

BancABC group economist Mr James Wadi said the lack of fiscal space that has seen the Finance Minister revising the budget downwards shows that the economy is over stretched.

He said the current scenario where there is a huge demand for revenue in a shrinking economy was not sustainable as such demands are only feasible in a growing economy.

"We are hitting a situation where even the productive sectors that have been propping up the economy are being choked by impediments and everything is slowly grinding to a halt," he said.

In this regard he said there was need for the country to focus on areas that can produce quick wins and attract Foreign Direct Investment into the country.

Some observers are, however, of the opinion that the minister could not have done much more than he did in view of the downside risks that have been dogging the economy since the start of the year.

It is these negative factors that forced Minister Biti's hand to review the budget downwards to US$3,6 billion from the initial US$4 billion, as well as reviewing this year's Gross Domestic Product growth projection from 9,4 percent to 5,6 percent.

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