FINHOLD has said Zimbabwe’s economic growth projections for 2006 are unlikely to be driven by agriculture as the sector is hampered by shortages of inputs and late rains.
Finance minister Herbert Murerwa has projected that the economy will grow by 2% to 3,5% in his budget statement. The financial services group in its budget analysis said factors such as the shortage of fuel and seed will negatively impact on the sector resulting in reduced production.
“Notwithstanding the ambitious growth projections every year, the Minister of Finance still believes that Zimbabwe’s economy will expand by between 2% and 3,5% in 2006, with agriculture expected to spearhead the recovery,” Finhold said.
“This optimism is not backed by developments on the ground, where production is likely to be compromised by, among other factors, the shortage of essential inputs such as fertiliser, chemicals and fuel. The late arrival of the rains is also likely to result in lower than normal agricultural production.”
The group said although the minister had called for discipline in agriculture, it remains to be seen whether this will be respected.
“Additionally, while the minister’s statement on discipline in the agricultural sector is welcome, it remains to be seen whether such sentiments will be respected so as to encourage investment in the sector,” Finhold said.
Finhold said the budget statement had failed to provide details as to how government would reduce inflation from 411% in October to the projected target of 80% at the end of 2006.
“The budget statement states that even though the year-on-year rate of inflation stood at 411% in October, it will be brought down to end 2006 at 80%. However, there is not much detail on how this will be achieved, except the belief that the country will experience normal rains,” Finhold said.
It said given the frequent droughts, the projected rebound of agriculture as a major contributor to the economy was highly unlikely.
“Moreover, there is mention of a desire to implement complementary restrictive fiscal and monetary policies. Given the frequent occurrences of drought, over which the country has no control, and the constraints listed above, the expected rebound in agriculture may not occur.”
The financial services group said conditions under which the current budget was crafted were unfavourable as the economy was expected to decline by 3,5%.
“The conditions under which the 2006 budget was crafted are highly unfavourable, with the economy forecast to decline by 3,5% in 2005 compared to the budgeted growth of between 3,5% and 5%,” said Finhold.
It said the policies announced by the minister were at variance with the need to reduce inflation and move away from a controlled economy.
“In addition, there are other policy measures announced by the Minister of Finance that are at variance with the need to reduce inflation. There is the desire to move away from a regulated economy to one where market forces play a greater role.”
The financial institution said the ability of the policy statement to deal with inflation would largely depend on how it would finance the projected budget deficit of $13,9 trillion.
“Moreover, the extent to which inflation can be reduced will also depend on how the projected deficit of $13,9 trillion in 2006 will be financed,” said Finhold.
“While the minister’s desire is to source the bulk of this amount from non-bank sources in order to reduce the inflationary impact of bank financing of the deficit, the capacity is not there,” Finhold said.
“As a result, and in, line with recent experience, a large proportion of the deficit is likely to be financed through bank borrowings which will result in an inflationary growth in money supply.”