HomeBusiness DigestZimbabwe budget silent on devaluation

Zimbabwe budget silent on devaluation

By MacDonald Dzirutwe/ Nelson Banya

ZIMBABWE’S economy is forecast to grow by 4% next year, which would be the first expansion in nearly a decade, while inflation sho

uld slow, Finance minister Samuel Mumbengegwi said yesterday.

Mumbengegwi did not devalue the Zimbabwe dollar as expected but analysts quickly dismissed the growth and inflation expectations, saying previous targets by President Robert Mugabe’s government were too optimistic and that projections had become largely meaningless.

“The 2008 budget is premised on a real economic growth of 4 % due to the anticipated growth in the agriculture sector (and) the industrial sector,” Mumbengegwi said in a televised budget speech to parliament.

Zimbabwe is caught in a severe economic meltdown marked by the world’s highest inflation, massive unemployment and shortages of food, fuel and foreign currency.

The economy has been in recession for eight years and has shrunk by an estimated 40% since 2000.

Mumbengegwi said annual inflation — which measured nearly 8 000% in September and was labelled number one enemy by the government — was forecast to slow to 1 978% for 2008.

“The 2008 people’s budget is premised … on a decline in the end period inflation of 1 978% for 2008,” he said, adding that October inflation data was still not available.

Analysts said it was almost impossible for the government to reverse the economic recession, with investor confidence further hit by the proposed transfer of foreign-owned firms, including mines and banks, to black Zimbabweans.

They say previous projections have not been achieved, including the prediction in last year’s budget that inflation would decline from above 1 000% to between 350 and 400% in 2007.

“I don’t see signs of real efforts to turn around the economy … it’s all geared towards expenditure,” Rashid Mudala, a Harare-based economic analyst, said.

“His growth projection is too optimistic because the factors affecting growth are not showing any positive signs … agriculture, on which much of the hope is anchored, remains a problem.”

A price freeze in June to try to curb runaway inflation further dented growth. The policy resulted in empty shop shelves and shortages of basic goods, while several businesses drastically cut operations to avoid losses.

Mumbengegwi also said the country’s food import bill was expected to more than double in 2007, underpinning severe food shortages which critics blame on Mugabe’s drive to seize commercial farms from whites to resettle blacks.

“Food imports are expected to grow from US$178 million last year to $405 million this year.”

In what he called the “people’s budget”, Mumbengegwi offered tax relief to workers and allocated $7 840 trillion in spending.

The figure is nearly 200 times total spending and borrowings for 2007, which analysts say showed the inflation outlook had worsened.

“The challenges of reducing inflation and restoring increased production necessary for economic recovery are enormous, but surmountable,” said Mumbengegwi, adding that sanctions were hurting the economy.

Mugabe’s government has faced international isolation over charges of human rights abuses and economic mismanagement.

The veteran leader, who denies mismanaging the economy and says Western nations opposed to his rule have sabotaged it, has staked recovery on the agriculture sector, which his government has extensively supported through special loans and subsidies.

Analysts say the economic slide rather than a divided opposition poses the biggest challenge to his 27-year-old grip on power as pressure mounts from an increasingly restive population ahead of next year’s harmonised elections.—Reuters.

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