This followed a 14% contraction in 2008. There was also a significant off-budget financing from donors to the tune of approximately US$540 million which represented 12% of GDP directed towards humanitarian assistance and social services. Budget revenue and grants drastically increased from the hyperinflationary era in 2008 when it was around 4% to 22% of GDP (US$975 million). This was attributed to a more stable pricing regime and the economy becoming more formal thus improving the collection of indirect taxes.
Capital expenditure was however minimal with most of the revenue generated going towards recurrent expenditure.
The civil service wage bill remains one of the major expenditure drivers, following the shift by government from a flat wage of US$100 for all employees to a differentiated regime in July 2009. As a result 53% of revenue in 2009 was utilised for employment costs far above the 30% recommended by the World Bank.
The Reserve Bank’s role has also been significantly reduced due to the “dollarisation”of the economy and the body noted that there were minimal quasi-fiscal activities from the Reserve Bank in 2009, accounting for only 0,5% of the GDP. The country’s external debt was estimated at around US$7,1 billion (162% of GDP) by the end of 2009 mainly as a result of new payment arrears, and interest and penalty charges on existing arrears.
The economic situation seems to be in a lull partly as a result of unresolved issues on the political front which has impeded any long term capital commitments from foreign investors. There are conflicting views on the general direction of the economy with the IMF revising their GDP growth forecast for 2010 downwards from 6,6% to 2,2%, owing to the general decline in foreign direct investment exacerbated by the Indigenisation Act which compels all companies to sell a controlling stake to locals in the next five years.
Local industry has also been affected by the low disposable incomes in the economy as well as inability to access credit lines for working capital needs due to the illiquidity in the economy.
Persistent power cuts have also negatively affected industry and will inhibit growth going forward. Corruption has also been highlighted as another factor which will inhibit growth as it frustrates investment.
The Finance minister has reportedly maintained his GDP projection of 7% which he had downgraded a few months back to 4,7%. Donor funding to the tune of US$1 billion is expected as well as growth in the mining sector with gold and platinum making most of the contribution.
With these contrasting views on the way forward the simplistic question to be asked is what is the reality on the ground? It appears the country has reached a stagnated lull with most people unable to define the general direction. Following the signing of the GNU there was general excitement and a defined upward movement with industry production capacity increasing from around 10% to the current levels of between 30-35%.
This has since become the “normal” level and uncertainty has significantly inhibited any capital projects from the foreign investors who are in a position to inject “meaniful liquidity” into the economy. Renewed talk of elections next year has also further cemented the “wait and see” view from investors.
The direction of the economy going forward is a function of many fundamentals and its anybody’s guess, but for now we seem to be in the eye of the storm.
By Precious Mhlandhla