21 November 2012

Zimbabwe: Politics Poke Holes Into Biti's Budget

FINANCE Minister Tendai Biti's 2013 National Budget, tabled in Parliament last week, contained little to remedy the country's dire economic problems, leaving the generality of the population bracing for tough times ahead.

To the common man in the street, the budget statement sounded hollow and sent home Prime Minister Morgan Tsvangirai's recent message: Tighten your seat belts, 2013 is a tough year.

A perusal of estimates of Zimbabwe's revenues and expenditures reveal that although Biti tried in vain to balance his books, the budget ignored a number of things that are essential in taking the country forward.

It ignored critical capital projects and could not budget for the elections in full, among other shortcomings.

In fact, no one else could have balanced the books after factoring in all the requests from line ministries and government departments while operating in a dysfunctional political system that Zimbabwe finds itself in.

But, one may ask why?

This is hardly surprising considering the hassling and tussling in the unity government, which has not being helped by the fact that the coalition partners have once again resumed their rivalry outside the government arena by slipping into the treacherous electioneering path of which the economy would be the last thing weighing on their minds.

As a result, the entire inclusive government is having to live within a mere US$3,8 billion purse despite ranking among the largest administrations in the world considering the size of the country's economy.

To borrow from American political satire, "It's the politics, stupid!"

The figures that Biti presented last week were depressing as theyprojected grim prospects for the country.

The numbers speak for themselves. National revenues have persistently underperformed every month, fuelling the budget deficit.

The total budget for 2013 is estimated at US$3,8 billion while 2012 revenues are most likely to amount to US$3,5 billion against the originally budgeted US$3,6 billion, due to lower diamond non-tax revenue. The trade deficit remained high at US$2,5 billion.

Next year, employment costs are estimated at about US$2,6 billion, accounting for 65 percent share of the total budget, leaving only US$700 million for everything imaginable under the sun that the government has to do, including funding for all line ministries.

The 2012 Gross Domestic Product (GDP) is projected to grow by five percent in 2013 to US$12,5 billion supported by a 17,1 percent growth in mining and quarrying, +6,4 percent in agriculture, fishing and hunting, +6,2 percent in construction, +6,2 percent real estate and +6 percent for finance and insurance.

From January to October this year, imports stood at US$6,5 billion compared to exports valued at US$3,09 billion, a development that only worsens the current account deficit.

The economy is estimated to grow by 4,4 percent in 2012 to US$11,4 billion driven by a 10,1 percent growth in mining, finance and insurance (+5,01 percent), transport and communication (+5,8 percent) and hotels and restaurants (+10,3 percent).

The average annual inflation for the year is forecast at 3,5 percent and the rate is expected to be inside 5 percent in 2013.

Zimbabwe's external debt is now estimated at more than US$10 billion and for more than a decade, the country has been in default, with arrears now estimated at US$6,1 billion.

Biti himself, could not hide the precarious state of affairs.

"The 2013 budget has easily been the most difficult to construct and engineer in the short life of this inclusive government," he said in his budget presentation.

The Finance Minister and secretary general of the Movement for Democratic Change, was possibly having his last budget presentation as this is the inclusive government's last national budget to be presented in the legislative assembly before Parliament is dissolved in a matter of months to pave way for general elections.

The fact that political compromise is needed for the three-party Cabinet to pass the budget, means therefore that some political players will have to abandon some of their deeply held economic beliefs for the sake of progress.

There is however, a real chance that the party that wins next year's elections might have to craft another fiscal policy to run during the remainder of the year.

Imara Edwards Securities, a local stockbroking firm, said the tendency by the authorities to resort to command economics especially with regards to the proposed guidelines on bank charges and interest rates was worrying.

Biti's guideline indicated that no bank charges should be levied for deposits up to a maximum of US$800 and also any term deposit of US$1,000 and above held over a period of at least 30 days and above should attract an interest of at least four percent per annum.

"History has shown us that arbitrary price controls do not work and are not good for business. Furthermore, if implemented the idea flies in the face of greater financial inclusion as financial institutions may shy away from certain market segments due to the high cost of doing business.

"In our opinion, most local products are not competitive because of the high cost of raw materials especially with regards to chickens. Most imported chickens are fed GMO stock feed which is significantly cheaper than locally produced non-GMO stock feed.

"Hence, the increased tariffs on some imported products may not have the desirable effects, longer-term. The surtax will only impact products originating outside of the Common Market for Eastern and Southern Africa and the Southern African Development Community region and this is mainly products from South America. Hence the impact on the retail end might be limited," said Imara.

Imara said the hike in excise duties would have minimal negative impact on volumes for companies such as BAT Zimbabwe and Delta.

"In any case, Zimbabwe's excise duty on cigarettes remains below that of the regional peers. For clear beer we believe the playing field is no longer skewed towards imports with local producers in a better position to price their products," observed Imara.

This week, political analyst Takavafira Zhou, said the surest way for Zimbabwe to craft a budget that places it on a trajectory of economic prosperity is to first solve its political problems as they are a drawback to the economy.

"There is a thin divide between politics and economics; our politics affect our economy. In fact, most countries that are prosperous are in that position as a result of political factors and political policies. There is a symbiotic relationship between politics and the economy. When you look at Zimbabwe, its political polarisation that has affected our economy," said Zhou.

Zhou said if there is violence in next year's elections, it will again affect the country's economy. Uncertainties in the political sphere tender to rattle investor confidence.

There are a whole gamut of issues that have impeded economic growth: They include policy inconsistencies; perceptions of a police State; sanctions; low business confidence, fiscal revenue underperformance as a result of the opaque nature of diamond sales, failure to institute a land audit in order to increase farm productivity as well as failure to constitute a National Economic Council as per the terms of the Global Political Agreement that paved the way for the formation of the inclusive government in February 2009.

Then there is the issue of when the country should go for elections whose resolution would determine whether the country's economy continues on a downward path or not.

Analysts said all these political and economic issues needs political will to eradicate.

Zimbabwe National Chamber of Commerce president, Oswell Binha, has previously said politicians must be guided by the realisation that business strives in an environment where there is political harmony.

He said there is need to ensure that the holding of polls answers the question of legitimacy and the people's mandate to govern.

"Holding elections this year or next year is not materially important, but what type of an election? We do not have the luxury and latitude to return to chaotic electioneering regimes. It is bad for business," said Binha.

"The country needs to determine key enablers to a peaceful election that will certainly protect security of investment, freedoms, and indeed growth and development of our means of production.

"Anarchy and chaos will certainly destroy the gains of stability we have enjoyed to date and we implore government to deal with all underlying issues to ensure a peaceful poll."

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