FINANCE minister Samuel Mumbengegwi’s budget yesterday showed a deficit of $1 760 quadrillion a figure representing 4 064% of the consolidated budge
t for 2007. This means that this next year’s deficit is actually far more than the total budget of this year.
Expenditures for 2008 will come to a whopping $7 840 quadrillion outstripping revenues set at $6 080 quadrillion.
The budget deficit is approximately 11% of the country’s Gross Domestic Product (GDP) which Mumbengegwi set at $16 000 trillion. Even at such huge figures in monetary terms the market believes that the deficit is heavily understated. The International Monetary Fund said this year’s budget deficit would rise to more than 75% of the GDP as government continues to spend money it does not have.
Analysts say the budget will have to be funded through money printing and domestic borrowings. Government’s domestic debt is currently at $12 trillion.
Mumbengegwi said he expected the budget to drive down inflation from current highs of 14 840% to 1 978% at the end of next year. It is however unclear how this will be achieved when the new figure budget figures are more than 12 000% more than this year’s budget.
Ministries and government departments had submitted expenditure requests for $42 435 trillion which Mumbengegwi dismissed saying they were inflationary.
“These bids are geared towards chasing inflation rather than reducing it. However, the thrust of the 2008 People’s Budget is geared at stabilising the economy and increasing output and productivity in order to put the economy back on a sustainable recovery and growth path,” said Mumbengegwi.
The minister also projected that the economy would grow by 4% and said this growth would ride on the agricultural sector, improved industrial performance and increased activity by Small and Medium Enterprises (SMEs).
“The 2008 macro-economic framework is premised on a projected real economic growth of 4%, due to the anticipated growth in the agricultural sector, improved industrial performance and economic performance by the grassroots, including SMEs,” he said.
However, economists said the growth targets were far fetched as Mumbengegwi had already laid the ground for the economy to shrink much further.
University of Zimbabwe (UZ) economist Tony Hawkins said Mumbengegwi’s budget was based on a lot of wishful thinking and was patently misleading.
“If you look at the statement and the blue book, the figures differ. With the level of expenditure requests made by ministries, it means next year we are going to have quite a number of supplementary budgets. And it obviously means the budget deficit will be much higher,” Hawkins said.
Hawkins said government was clueless as to how it would get through next year and was likely to continue with Reserve Bank of Zimbabwe’s inflationary quasi-fiscal funding.
“Ministries did not get what they asked for; instead they only got 18% of their requirements. It means we are likely to see inflation peaking,” he said.
Economist John Robertson said Mumbengegwi’s growth forecasts were unrealistic and said the economy was set to shrink further.
“The growth forecasts are unrealistic for a number of reasons. He (Mumbengegwi) has already disallowed expenditure requests from government ministries and departments for $42 435 trillion,” John Robertson said.
“In the absence of such funds, it means we are going to see seriously deteriorating levels of efficiency and effectiveness across the public sector next year.”
Mumbengegwi said his People’s Budget would try to stem skills flight so as to ensure that government achieved economic turnaround.
“The 2008 Budget, therefore, targets the retention and attraction of skills, through a package of incentives,” Mumbengegwi said.
Robertson said this was highly unlikely as government was unable to meet the requirements of its ministries and departments.
“Mumbengegwi only allocated less than a fifth of what ministries requested. It means government cannot meet the requirements of its own departments. Most of that money was set to pay better wages and replace equipment. The people with skills will leave and those left behind will reduce their productivity and concentrate on their own small businesses on government time,” Robertson added.
Capital expenditure accounted for only 32% of the submitted budget statement while recurrent expenditure — a major inflation driver — is 68% of the budget.