Biti yesterday told government officials attending a joint pre-budget ministerial workshop and a review of the Government Work Programme (GWP) at a lodge in Harare that government ministries should make “realistic” inputs to the national budget expected to be tabled in parliament in November.
The inclusive government formed between President Robert Mugabe, his long-time rival Prime Minister Morgan Tsvangirai and his deputy Arthur Mutambara has failed to attract significant Foreign Direct Investment, critical lines of credit and budgetary support from international money lenders and donors.
Multilateral lenders want government to formulate a debt-settlement plan for the growing US$7 billion accrued by the state before they can reengage the financially-beleaguered government.
Western donors on the other hand say Mugabe –– who heads the coalition –– should effect more political reforms required to make the inclusive government more credible. They blame the octogenarian leader, who has ruled the country for 30 years, for the country’s worst human rights abuses, breakdown in the rule of law and accelerating the decade long recession.
Biti said the financial constraints on the fiscus have led to nearly 90% of total national revenue being wiped out by recurrent expenditure, with the bulk of this being employment costs for the public service.
The Finance minister said the two-year old coalition stands alone in sourcing revenue after it became apparent that donors to date had only committed “less than 30%” of the US$800 million vote of credit announced in the 2010 budget.
Despite the limited capital inflows that have hamstrung the government, Biti, however, painted a rosy picture of the economy.
He announced a modest annual economic growth projection of 8,1%. This latest forecast becomes the second in two months and third during the same year. Treasury initially estimated Gross Domestic Product (GDP) growth for 2010 to be 7,7%, only to revise it downwards to 5,4% in July due to slow economic performance during the first half of the year.
Critics attribute the slow take off to uncertainty that resulted from the controversial empowerment regulations compelling foreign-owned companies to surrender a controlling stake to black Zimbabweans in the next five years. Government gazetted the regulations targeting companies valued at US$500 000 or more in January.
“This economy should generate internal revenue of US$1,9 billion in 2011. So what then will be the size of this budget?” Biti quipped.
“The size of the budget if you stretch it can be more than US$2,5 billion. When you put it to US$2,5 billion you are in fact saying the difference between US$2,5 and US$1,9 must actually come from donors. If you are going to use the precedent of 2010 where the vote of credit did not perform, it actually means that the budget ought to be US$1,9 billion and because you want round figures, it will be US$2 billion. This is very important because it illustrates the total lack of fiscal space.”
On economic outlook, Biti said the GDP — a measure of the country’s overall economic output –– would maintain an upward trend buoyed by a rebound in agriculture and mining. Zimbabwe’s economy grew by 5% last year –– the first recorded expansion since 1998 –– with analysts expecting a similar increase this year.
He said beverage and tobacco production companies currently operating at an average of 80% capacity would also give an impetus to Zimbabwe’s economic prospects.
“There will be major rebound in the year such that growth projections as of 31st of December will be 8,1%. This is underpinned by a serious rebound in agriculture where we had said 18% (but) we think that it will grow by 34,1%, largely as a result of the strong performance in tobacco,” the Finance minister said.
Deliveries made to the country’s tobacco auction floors –– which closed the marketing season earlier this month, but still carrying out mop-up sales –– were expected to reach 120 million kilograms, a record delivery since government embarked on a violent land reform exercise expropriating white commercial farms in 2000.
Biti said mining, the country’s top forex earner, which contributed US$598 million of the country’s US$871,8 million during the first six months of the year, will grow by 44% by year end.
Tourism, which at the start of the year was widely expected to be a boon to the economy because of anticipated spillover economic benefits from the recently held 2010 Fifa World Cup in South Africa, according to the Finance minister, is expected to register a 6,5% growth.
Turning to month-on-month inflation, Biti said current developments of price changes are a positive economic indicator achieved by the coalition during the second half of the year.
He, however, threatened to read the riot act to some companies he accused of stoking inflation by perpetuating “opportunistic business practices” reminiscent of the 2008 hyperinflationary era.
“Month-on-month inflation from June to August has been -0,1%, which means that we are still on course for an inflation target of 4% by 31 December 2010. But there is a constituency of business people in Zimbabwe who are refusing to wean off from the hyperinflationary era and are perpetuating opportunistic business practices,” Biti said.
Meanwhile, Tsvangirai who, according to the power-sharing pact, is mandated to formulate government policy said he was “a little disappointed” that the GWP –– a government work plan for the year approved in cabinet in March–– would only achieve 60% of its objectives due to “capacity issues”.
“The GWP targets were not simply aspirational, like many of the targets in the 100-day plan. They were firm commitments to produce certain results, based on certain assumptions,” Tsvangirai said.
“It looks like we have achieved or are on track to achieve only about 60% of what we undertook in the GWP…In only 28% of problems was funding identified as a significant constraint.”
Zimbabwe is yet to fully rehabilitate its dilapidated infrastructure, ensure food security, normalise international relations with Western governments and open the airwaves to allow more players in broadcasting.