IF PAUL the Octopus, who became famous for predicting World Cup match results during the just-ended soccer tournament, had been asked to predict contents of Finance minister Tendai Biti’s budget last week, he probably would have told the nation that revising economic growth would be the theme of the budget.
However, analysts say Biti merely told people what they already knew save for the revision of projections for some sectors. The analysts say Biti’s mid-term budget lacked evidence of broad consultation from stakeholders.
In his 2010 National Budget Statement presented on December 2 last year, Biti provided for a total expenditure of US$2,25 billion of which US$1,44 billion was to be generated locally. The balance — US$810 million— was expected to come from donors.
According to Biti, only US$207 million had been received by June 30.
However, increased performance on the revenue side has seen total revenue for the year being revised upwards to US$1,75 billion, reducing the budget deficit to US$500 million or 9, 6% of GDP.
Analysts said the fiscal policy review had spelt the difficult times ahead but the private sector, interestingly, has to take advantage of the prevailing fragile status of government finances and reshape its balance sheet for a more difficult future.
Economist Witness Chinyama says little was expected from the budget considering the liquidity crunch that was prevailing on the market.
“The liquidity crunch that has caused stagnation in capacity utilisation for almost a year now has seen the minister revising economic growth forecasts downwards. For instance, GDP that had been initially expected to grow by 7% has now been revised down to 5,4% due to downgrades in manufacturing, mining and tourism,” Chinyama said.
Economic analyst Brains Muchemwa said the mid-term fiscal policy review brought about a number of changes, but one fact remains, and that relates to the sick economy.
“Zimbabwe remains the sick man of southern Africa, and although modest growth of 5,4% is expected in 2010, the key economic fundamentals remain fragile, and indeed, as the minister said, of course without practising it, business cannot be run on the same old mentality,” Muchemwa said.
Mining is now expected to register a 31% growth from the previous 40% while manufacturing growth forecast is now down at 4,5% from 10% while tourism is expected to grow by 3,5% instead of 10%.
Construction is expected to grow by 1,5%, transport and communication by 3% and public administration 2%, while electricity, gas and water production is forecast to shrink by 1,8%.
Agricultural growth, however, has been upgraded to 18,8% from the previous 10% due to a rebound in tobacco production.
Tobacco output which initially had been forecast at 77 million kgs has since been revised significantly upwards to 114 million kgs. Maize output rose by 3% to 1, 33 million tonnes, while beef production rose 2% to 95 000 kgs.
Some analysts said they expected the liquidity crisis to improve once the sale of diamonds from Marange commenced.
Economist Tony Hawkins said selling diamonds was a noble idea but the nation should not be kept in the dark on the procedure.
“It is a progressive idea (to sell diamonds at a national level) because it will improve cash flow. The procedure of how the sale will be conducted should not be kept a secret,” said Hawkins.
Chinyama said: “The reaffirmation by the minister of the continued existence of the multi-currency system until 2012 is a positive development indeed as it will make planning by the business community easier knowing that they will continue to use a stable currency regime.”
In the revised 2010 National Budget, the capital budget stands at 18% of total expenditure, leaving recurrent expenditure at a staggering 82% although it is an improvement over the 2009 capital budget of 4, 4%.
Chinyama said the gloomy aspect of the budget was that a greater percentage of the recurrent expenditure was employment costs like wages and salaries.
Given that these costs are non-discretionary, the minister has little room to manoeuvre which means Zimbabwe is likely to see the same structure being perpetuated in the 2010 National Budget and beyond.
Muchemwa said the budget deficit of 22% at $500 million (9% of GDP) points to many programmes that need to be suspended, an unfortunate sign that government will struggle to pay creditors who supplied goods and services.
“Without doubt the government will remain in this fiscal fix of being largely consumptive and, unpopular as it sounds today, civil service reform is what will set the right foundation in unlocking fiscal resources towards areas that will generate growth for the wider economy,” said Muchemwa.
“Are we settling on the Mozambican stabilisation experience of having low inflation, steady growth, high unemployment and significant donor aid,” Muchemwa questioned.
“It’s not a secret that most corporate balance sheets have become septic with debt as most companies plunged into debt with the blind assumption that they would improve production and get more profitable with dollarisation,” he said.
Writing in a local weekly newspaper, MP for Tsholotsho Jonathan Moyo said Biti’s budget was “lacklustre” and “laden with telling contradictions underpinned by his mischievous political intent”. Moyo alleges that since Biti was appointed Finance minister, he has adopted a “know -it all” attitude. Moyo accused Biti of not consulting “relevant stakeholders” on national economic issues.
“Notwithstanding his obvious inexperience and lack of professional grounding in the field, Biti has surprisingly and unwisely adopted a non-consultative I know it all attitude which has alienated key economic players including pivotal bureaucrats in his ministry, not to mention other stakeholders in and outside the coalition government,” wrote Moyo.