Donor reluctance casts doubt on projected economic growth

THE reluctance of international donors to provide significant budgetary support to Zimbabwe could scupper government’s projected Gross Domestic Product growth rate of 8,1% in the coming year, analysts have said.

Last week, Finance minister Tendai Biti said the economy would this year grow by at least 3% on last year’s figure despite limited bilateral support to treasury via the vote of credit.

Biti said the growth would be achieved although donors have to date committed “less than 30%” in financial aid required to cover the yawning discrepancy between government revenue and expenditure.

Government last year hoped donors would inject US$800 million to the US$2,2 billion budget.
At US$800 million, donors would have contributed 36% of the total budget. If the donors had honoured their pledges, Zimbabwe would have joined the league of countries heavily dependent on budgetary support.

Other countries in the same league include Mozambique and Malawi.

These countries receive upwards of 40% in budgetary support.

In Mozambique, for example, there are 19 donor agencies which have pledged to support the country until 2014 when they would review their relationship. Mozambique is yet to fully recover from the vagaries of a civil war which lasted almost two decades.

Mozambique successfully courted donors for budgetary support after the civil war ended in the early 1990s.
It was expected that Zimbabwe would also be able to woo donors after resolving its debilitating political conflict last year by forming an inclusive government.

In the absence of donor support, Zimbabwe is in a tight squeeze, as it is technically supposed to use 65 cents for every dollar Biti had allocated for use this year.

This has been made worse by the pressure exerted on the revenue that government realises each month. Statistics show that nearly 90% of the estimated US$140 million  monthly revenue goes towards recurrent expenditure. Any efforts by the central government to finance development projects might not see the light of day, at least in the short-term.

Biti said mining and agriculture, which for close to a decade were subdued due to a myriad of problems, would drive the recovery.
Political analysts, however, contend that the projected economic growth forecasts could be too ambitious for the foreign direct investment-starved nation.

Western donors and the United States (US) want the coalition government to make political reforms envisaged in the September 15 2008 power-sharing pact before they can loosen their purse strings.

But government, notably Zanu PF bureaucrats, believe that economic sanctions imposed by the European Union and the US — targeted or otherwise — are limiting Zimbabwe’s access to global capital.

University of Zimbabwe political science lecturer Eldred Masunugure says the availability of more donor support hinges on the coalition government’s commitment to implementing the global political agreement (GPA) between President Robert Mugabe, Prime Minister Morgan Tsvangirai and his deputy Arthur Mutambara.

Masunungure said apart from these reforms, which call for strengthening democratic institutions, government should exercise frugality when handling public funds.

Biti has in the past threatened to “name and shame” big-spending government officials. But to date no names have been mentioned.
“No one is prepared to fund a government that is extravagant. Government has to display frugality,” Masunungure said.

He cited the late Tanzanian president Julius Nyerere as one statesman who lived within the means of his country.
Because of Zimbabwe’s extravagance, Masunungure expects donors to remain conservative.

Last week critics blamed Mugabe for taking an 80-man delegation to the United Nations General Assembly meeting saying Zimbabwe’s economy is too small to finance such indulgence.

“That 30% (commitment to the vote of credit) is unlikely to be scaled up unless there are meaningful and comprehensive political reforms,” he said. “The Finance minister should craft his (2011) budget with that in mind. He should come down to earth and expect modest contributions from donors.”
Masunungure said skirmishes which characterised the suspended constitution-making outreach programme in Harare a fortnight ago could again leave cash-rich donors more cautious in supporting the desperate Southern African nation.

“The constitutional reform exercise is a flagship of the political reform. The disturbances that marred the constitution-making outreach programme contributes to the reluctance by the donors, but the biggest problem is political reform. Donors want the full implementation of the GPA,” he added.

Mandla Nyathi, Buckinghamshire New University Risk and Resilience Management lecturer, says the burden put by loss-making government entities on the fiscus will continue to squeeze fiscal space unless government transforms the state owned enterprises into semi-autonomous institutions.

He cited hospitals, schools, technical colleges, water and sanitation and local housing as examples of institutions that can be removed from direct fiscal responsibility of a cash-crippled government.

Government is cautious about restructuring or privatising parastatals, fearing that the entities could be sold for a song.
Some of the parastatals that have been in perennial financial crises include Air Zimbabwe, Grain Marketing Board and power utility Zesa.

“The Finance minister and cabinet have over-committed the public purse to include sectors that can easily thrive outside the control and management of central government,” Nyathi said. “The Finance minister’s model (widening fiscal space) should seek to get third sector economy players. He needs to create public space as well as fiscal space for organisations such as charities, NGOs, churches and so on to play a greater role in providing primary services. The capital and potential locked away in these organisations is everyone’s guess. We need to see more involvement of these third sector economy players and greater freedom in what they do.”

Chris Mugaga, head of research at Econometer Global Capital of Harare, believes that although donor commitment to the vote of credit could soar to 60%, Biti’s economic growth projections could be ambitious

“The economic growth projections, however, are biased towards agriculture, tobacco production in particular. But the influence of tobacco production to the GDP is quite insignificant to an extent that an 8,1% economic growth driven by this sector could be exaggerated,” Mugaga said.
Unfavourable investor perception towards Zimbabwe, he noted, can be a “deterrent to the trajectory the economy can take”.

He warned that government plans to introduce fiscalised electronic registers this month could be a blow to government’s efforts to widen its revenue base in an economy believed to be 35% informal sector. Government pledged to pay 50% of the cost of acquiring the machines and technical requirements which are expected to replace manual tilling systems.

“The new system has loopholes and that is another risk government can face in tax collection because few people can afford them. They are a luxury,” Mugaga said.

Apart from direct budgetary support, donors may also adopt project support where they undertake to initiate certain development projects.
In most cases, project support is not included in the national budget and thus is out of reach of the treasury.

 

Bernard Mpofu and Leonard Makombe

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