14 November 2012

Zimbabwe: MTP Misses Annual Economic Targets

GOVERNMENT on Monday published the report on the first annual review of its five-year economic blueprint, the Medium Term Plan, and the results so far leave a lot to be desired. A close look at the MTP shows that annual economic targets in the MTP were missed. Persistent resource constraints increase the likelihood of more targets being missed.

The fears of lower growth expectations is reflected in the policy document's revised growth targets of 5,2 percent, 7,8 percent and 7,4 percent for 2013, 2014 and 2015 respectively.

Initially, the policy had targeted economic growth of 6,6 percent, 6,4 percent and 5,4 percent for the period to 2015.

The only economic variable that the MTP projection fully actualised thus far is annual inflation, which remains well below the 5 percent band that was targeted for the period 2011 to 2012.

The major reasons cited for most of the missed annual economic targets include limited fiscal space, low levels of investment, delays in the State Procurement Board, Policy inconsistencies, international isolation of Zimbabwe, lack of access to lines of credit and alleged widespread fiscal leakages.

The MTP was premised on the broad assumption that Zimbabwe would realise at least US$9,2 billion investment between 2011 and 2015.

FDI totalled US$387 million in 2011 against a target of US$1,4 billion while public sector investments only come in at US$180 million in July this year against a target of US$384 million.

In 2011 key economic anchor sectors such as mining and agriculture missed targets with mining only managing 39 percent against a target of 44 percent while agriculture growth came in at 11 percent against the projected 19 percent.

The MTP has since reviewed downward projected growth for the mining sector for this year to 10 percent from 20 percent.

Agriculture's projected growth of 15 percent is now seen at 4,6 percent in the MTP, but the Ministry of Finance believes the sector would register a negative growth of 5 percent.

While the economic blueprint has definitely missed key annual targets Economic Planning and Investment Promotion Minister Tapiwa Mashakada remains optimistic about achieving most of the targets when the plan runs its course.

"We have not been able to achieve MTP targets in manufacturing due to lack of credit, competition from exports and energy shortages. Manufacturing is still reeling from the adverse effects of these factors," the minister said.

"The growth of the economy is however projected to slow down to 4,7 percent in 2012, which is lower than the MTP target of 7,8 percent," reads an excerpt from a progress report.

The plan had targeted annual economic growth of 7,1 percent but that will not be possible with Finance Minister Tendai Biti expected to further revise the economic growth rate to below 5,6 percent.

Minister Biti had initially projected this year's economic growth at 9,4 percent before revising it to 5,6 percent due to poor performance in the agriculture and mining sectors.

But foreign investment has only trickled in very negligible amounts making it difficult for the Government to fund its capital projects.

The MTP requires US$2 billion per year for its programmes, but this remains largely a pipe dream considering the figure represents 64 percent of the national budget.

In what vindicates earlier Cabinet concerns about the MTP's huge funding requirements against constrained fiscal space the plan failed to get enough fiscal support and attract both meaningful foreign and domestic investment.

Projects worth US$11 billion were approved, but most of them were not implemented and this is attributed to the negative doing business environment prevailing in the country.

While principles for public private partnerships were completed the relevant legislation has not been crafted with the proposals still holed at the Attorney General's office.

Recurrent expenditure was targeted at US$2,2 million, but reached US$2,5 million in 2011 and is seen at US$3,1 million in 2012.

Capital expenditure was projected at US$455 million in 2011 and 602 million in 2012 but only came in at US$359 million last year and is only expected US$384 million this year.

The balance of payment scenario remains largely negative after a slight reduction from minus 15 percent in 2009 to minus 10 percent now against a target of minus 3 percent by 2015.

This situation is not likely to improve much in the medium terms considering the phenomenal growth in imports, against sluggish growth in exports as industry struggles for survival.

Imports continue to grow tremendously each year and now stand at about US$8 billion against annual exports of only US$3 billion.

"Our import bill is unsustainable and so our balance of payments position remains negative," Minister Mashakada said on Monday.

While notable progress was noted in increasing power generation from 952 megawatts in 2010 to 1 401MW by July 2012 targeted output at production stations were missed.

The MTP had targeted to increase output of 750 megawatts at Kariba Hydro Power Plant, but only 620MW were achieved while Hwange Thermal output rose to 425MW compared to 780MW targeted in the policy document.

Minister Mashakada admitted that without one of the key enablers of economic growth, energy, there was risk that virtually all targets set in the five-year economic plan will be missed.

"The MTP set a target of 1 800MW by 2012, but as of July 2012 we were at 1 400MW. Unless and until we have investment in energy all MTP target will not be achieved," he said.

Other key enablers of growth such as road, rail and transport systems remain far away from the targets espoused in the MTP.

Out of a total road network of 88 000km only 10 percent is tarred with the rest is gravel and in largely in poor state.

Minister Mashakada cited funding constrains on the projects although work has started on rehabilitation of some important trunk roads.

These include the Harare-Bulawayo, Harare Beitbridge, Plumtree-Mutare and Beitbridge-Chirundu road, where a local private consortium has done little to fulfill terms of the contract.

Government, under the MTP, had targeted to attract at least 30 airlines, but to date only 15 have started or resumed flights to Zimbabwe.

But the restructuring of Air Zimbabwe is still lagging behind targets and Government has only agreed to takeover its debts and retrenchment costs and is still working on finding a strategic partner to acquire a 74 percent controlling stake in the firm.

Minister Mashakada said Government's US$10,7 billion debt overhang continues to stand in the way of international capital and lines of credit. Efforts are underway to clear the debt, but for now this has blocked access to BOP and budgetary support.

African Development Bank economist Mr Damoni Kitabire said Zimbabwe would not get meaningful international funding unless it clears its external debt arrears.

Overall, the MTP missed targets in terms of economic growth rates, power generation, investment inflows, balance of payment ratios, current account deficit and employment creation, foreign savings, debt clearance and infrastructure projects.

While targets have largely been missed progress has been noted in terms of rehabilitation of key infrastructure such as energy and road networks, SMEs growth, availability and affordability of education, health services and provision of safety nets.

However, it was generally agreed that the biggest challenge to the country's efforts at realising targets set in the US$9,2 billion programme remain the critical shortage of funding and power.

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