Biti, who presented his Mid Term Fiscal Policy Statement (MTFPS) on Wednesday, said although the economy has a pulse, its health remained very fragile and can only be rescued through a major shift in thinking from the “lackadaisical approach”.
Biti presented a unique MTFPS unaccompanied by a supplementary budget.
A supplementary budget is an additional budget when government fails to live within its means or fails to raise more revenue than it had anticipated.
Since the adoption of multiple currencies at the end of February last year, Zimbabwe relied on “what we gather is what we eat” as a step towards stabilising the economy at a time when the central bank could not print notes.
This approach yielded desired results as there was instant inflation reduction to -7% (annualised inflation), improved capacity utilisation to between 30% and 50% (from an average 10%) and an ultimate improvement in public service delivery, especially water and sanitation, transport, health and education sectors.
Inflation now looms and while it would not reach the 2008 levels of 230 million percent, it spells problems for an economy which is using stable currencies.
Treasury had anticipated that around 36% of the US$2,25 billion national Budget would be met through vote of credits but donors have only made available about US$3 million and the deficit has not been met by increased revenues, a development pointing to a budget deficit.
Biti said the projected 7% growth in the country’s gross domestic product was shattered by a number of factors and now the country’s economy is expected to grow by 5, 4%.
“The revised projection figure of 5, 4% should not be taken for granted,” said Biti. “A ‘business as usual’ mentality will certainly guarantee a further downward revision.”
Agriculture is the only sector which grew beyond expectation, with the projected growth at 18, 8% revised upwards by 8, 8 percentage points on the projected figure when Biti announced the 2010 Budget last year.
Growth in agriculture is driven by a 67,3% increase in tobacco production, another 3% increase in maize output to 1,33 million tonnes and a modest 2% growth in beef production to 95 000 tonnes.
The electricity, gas and water sector is expected to shrink -1,8% on the 2009 figure. When Biti presented the 2010 Budget, this sector was anticipated to grow 3, 4%.
The revised growth rate is a result of the failure by the productive sector to access medium to long term financing. Most financing has been on the short term, up to 90 days, at very prohibitive rates of up to 30%.
Absence of financing, Biti said: “Constrained critical investment infrastructure rehabilitation and the maintenance and upgrading of such key enablers as sustainable supply of power generation capacity.”
Companies have also failed to attract meaningful lines of credit to re-tool and access raw materials for the restoration and improvement of production capacity utilisation.
As a result, production costs have remained very high which has seen locally produced products being less competitive compared to those produced by more efficient economies like South Africa.