Budget Review Exposes low Revenue Inflows

FINANCE Minister Tendai Biti yesterday gave little respite to motorists by reducing duty on diesel marginally from US20c to US16c a litre and maintained the high rate at US20c a litre on petrol putting paid any chances of a cut in the price of fuel.


The price of fuel has of late increased largely due to tax on the essential commodity and financing challenges at the National Oil Company of Zimbabwe. There were expectations in the market this week that Biti would reduce or remove completely the duty on fuel. Diesel is currently selling at between US$1 and US$1,10 a litre while petrol is priced at between US$1,40 and US$1,60 a litre. The high cost of fuel has contributed to an increase in the price of goods and services. There are fears that this could stoke new inflationary pressures on the recovering economy.

However there was joy for importers of newspapers as the minister scrapped the 40% duty on imported titles. Biti also removed duty on cellular phone handsets, computers and printers. He also reduced duty on motor vehicles with combis with a carrying capacity of 15 to 20 passengers attracting 15% duty and single cab vehicles 20% down from 25%.
Biti’s budget review however exposed major challenges around low levels of revenue inflows that have made it impossible for government to meet disbursements for requirements by ministries.
He said the government was facing challenges with regards to supporting the financial requirements for agriculture.
“Requirements for the 2009/10 summer cropping season, estimated at US$880 million, are not only almost equal to the entire 2009 national budget, but are also in excess of the domestic financial sector savings deposit base,” he said.
He said additional budget challenges emanated from requests by some ministries for funding in areas that had not been covered within the US$1 billion 2009 envelope.
Ministries, notwithstanding their appreciation of the realities of cash budgeting, continue to raise bids for additional requirements, he said.
The requests include services for the audit of the payroll, requirements for decent public service remuneration, public service delivery, infrastructure, the new constitution-making process. Biti proposed to sustain existing ministries’ operations as well as provide for new requirements. The minister yesterday revised the year-end economic growth projection to 3,7% from the original 2,8% on the back of gains recorded in all sectors of the economy during the first half of the year in. Biti also revised the annual inflation average projection to 6,4% from 6,9%.
In his mid-term fiscal policy statement yesterday, Biti said the review should realign the 2009 budget expenditure priorities to expected revenue inflows, consistent with the cash budgeting policy thrust adopted in February.
“In short, we will continue eating only that which we hunted,” he said.
“Reflecting economic gains recorded during the first half of 2009 and prospects for economic recovery to the end of the year, the country’s real gross domestic product is poised to grow by an estimated 3,7% in 2009,” Biti said.
Biti said recovery in the country’s agricultural sector, estimated at 24,3% in 2009 was expected to influence the this year’s anticipated overall positive economic growth.
Biti said the devastating impact of the economic collapse over the past 12 years was reflected by the de-industrialisation of the economy and declining per capita GDP from an average of US$720 during 1997-2002 to about US$265 by December 2008.
Further more, informal employment is said to have risen to over 60%, leading to sharp contraction of wages as a share of GDP and overall increase in poverty levels
“Human poverty in this country as measured by total consumption Poverty Line and the Human Poverty Index is estimated to have risen by above the 63% and 51% recorded in 2003 and 2006,” he said.
Zimbabwe’s real GDP, which recorded remarkable positive growth rates averaging 3,9% per annum in the 1980s and 1990s shrunk by more than 40% during the period 2000-2007 and 48% by the end of last year, he said.
“From the second half of 2008, mineral prices particularly for platinum and nickel at the international markets began to fall as a result of the global financial crisis.
Platinum prices dropped from US$2 048 per ounce in May to US$834 per ounce by December 2008.
Gold prices also fell but by a smaller margin with March prices averaging US$968 per ounce while an average price of US$816 per ounce was recorded in December 2008.
In the first half of 2009, mineral prices however started stabilising as a result of interventions through fiscal stimulus packages introduced by most developed countries.
Biti said agriculture, which is the main pillar of the Zimbabwean economy with strong linkages to the rest of the sectors, contracted by an annual average of -7,1% between 2000 and 2008. Cumulatively, agricultural output contracted by -79,4% during 2002 – 2008.
Similarly, the mining and manufacturing sectors recorded average annual declines of -9% and -9,5%, respectively, during the same period. Sector performances during 2000–2008 are indicated in the graph below:
Biti said the most devastating problem which faced the economy since 2000 was inflation. During 1997 – 2002, inflation averaged 61,7%, after rising from 18,8% in 1997 to 135,1% in 2002. From 2003, inflation spiralled out of control and reached recorded hyper-inflationary levels of 231 million percent by July 2008.
“This marked the death of the Zimbabwe dollar, which subsequently went out of circulation, resulting in the market pricing of goods and services in foreign currencies from October 2008,” said Biti.
High inflation was primarily driven by high money supply growth on account of expansionary quasi-fiscal activities by the Reserve Bank. This pro-inflationary macro-economic policy was compounded by speculative activities in financial markets and the underlying severe supply constraints in the economy.
“The adoption of Sterp has resulted in the country recording consecutive negative inflation levels, with the month on month rate experiencing deflation since January 2009,” he said.

BY PAUL NYAKAZEYA

Top