4 January 2013

Zimbabwe: Biti Forecasts Not Realistic

editorial

In his state of the economy address last month, Finance minister Tendai Biti continued to croon the upbeat refrain of better economic prospects this year, lauding government for living within its means.

"By the end of the year we would have reduced our primary balance to zero, in other words, our books will balance and we are not going to carry a deficit in 2013," Biti said. "For a Finance minister, this is pleasing because we are eating what we are killing."

While sheer fiscal discipline is commendable, it belies a huge crisis that is unfolding in the country because of crop failure in last year's harvest and poor rains this current farming season. There are already reports of serious food shortages in rural households in Masvingo, the two Matabeleland provinces, parts of Manicaland and the Midlands.

As hunger stalks the country, Biti's zero primary balance posturing is set to evaporate in the heat of need. Government will have to find money to put food on the table in thousands of homes. Of major worry to Biti is the fact that drought mitigation by the state is required in a fiscal environment of projected reduced revenues this year.

He has a big fight on his hands to bring in the US$3,2 billion required to finance the cash budget in the wake of slower economic growth. The subdued growth reflects the challenges facing the economy including limited resources and the high cost of capital and labour; policy inconsistencies with respect to empowerment and indigenisation regulations; failing infrastructure; outdated technologies in the manufacturing sector; and frequent breakdown of machinery.

Biti last year appeared nervy about declining revenue inflows relative to demand and had to revise growth targets twice in less than one year. In his 2013 budget statement presented last November, Biti scaled back his 2012 growth forecast from 9,4% a year ago and 5,6% in July to 4,4%.

This is the least growth since dollarisation of the economy in 2009. In the next three years he says growth should slow down to 5% a year, but other official and private sector forecasters warn that even this may be too high. The International Monetary Fund has projected a 4% annual output growth.

What should be more unnerving for Biti is that there is no provision in the current budget to cater for food shortages. Aid agencies are forecasting the number of food-insecure people in the country is 1,7 million in the period January to March, an increase of about a million people compared to the same period last year

A projected food deficit is not the only cooler.

A referendum and harmonised elections in the first half of the year should see a further decline in economic activity as investors take up positions in the wings while assessing risk. Economists and investment analysts have already started talking about more corporate failures this year due to the poor operating environment.

Biti was right last November when he said: "The 2013 outlook also looks bleak -- blighted by a miscellany of factors that include a deeper global outturn, the continued capital deficit, financial sector instability and a poor business climate, amid other challenges."

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