This development will see most of government’s targeted projects failing to secure funding. Economists and analysts say government’s revenue performance threw into question its ability to accurately forecast performance, introducing huge planning risks across the economy. According to Biti’s March 2012 state of the economy update, revenue in the first quarter totalled US$771,1 million against a target of US$869,7 million.
The cumulative US$98,6 million deficit in revenue collection in the period was against the backdrop of huge government expenditure in salaries, which gobbled up 70% of revenue. The average monthly employment cost outlay between January and March totalled US$191 million against a target monthly expenditure of US$178,4 million, meaning only US$231,3 out of the collected US$771 million could be channelled to key developmental projects.
Biti blamed the under-performance of revenue collection to a let-down by diamond mining firms, which only remitted US$30,4 million against a target of US$122,5 million. If this trend of diamond revenue persisted, it would result in the need to revise targets for 2012.
“The 75% deficit in diamond revenue contribution leaves government with no choice but to review downwards the projected economic targets for 2012,” Biti said.
Diamonds were expected to contribute US$600 million to this year’s US$4billion budget, a forecast analysts say will not be achieved this year given slow remittances from the sector.
Biti said there was no transparency in the remittance of proceeds from diamond mining companies. Whilst agriculture was projected to grow by 11,6% , maize output was now anticipated to decline by 33% to 968 041 metric tonnes this year, down from 1,451,629 metric tonnes last year. The underperformance of the agriculture sector is expected to exert more pressure on food inflation.
The resultant general decline in maize production would have an adverse impact on overall agriculture output and this year’s GDP projection, Biti said.
The decline in maize production would also worsen the trade deficit, currently at US$900 million, in the first quarter of the year. Imports by end of March totalled US$1,8 billion against exports of US$900 million in the same period.
Government, however, has not taken any significant measures against the rising import bill. Worryingly, the trade gap, which continues to grow, is being financed by banks which are already facing liquidity challenges.
The economy faces downside risks owing to failure to realise budget revenue targets and moreso, demand for the country’s export commodities continues to decline. Coupled with rising imported inflation against the background of rising global prices, this will have a negative bearing on the overall GDP growth this year.
Key indicators of the economy show a negative growth, which brings into question the achievability of the government’s Medium Term Plan (MTP) target. Statistics from the Ministry of Finance show that inflation is expected to rise to 4,3% in April and reach an average of 5% by year end.
According to economics professor Tony Hawkins, the government’s targets for 2012 are extremely optimistic. “Obviously one cannot forecast agricultural production before planting. Government’s idea of forecasting is taking last year’s numbers and increasing them, and this will always be unrealistic. This creates an upward bias, particularly in the revenue predictions that leads to such scenarios as we have now,” Hawkins said, highlighting Government’s poor forecasting record.
He said that it was still a bit too early to judge the performance of diamond revenues because they do not come evenly during the year. “Presumably the minister’s forecasts were based on estimates provided by the Ministry of Mines”, he said.
Hawkins identified several downward risk factors that resonated with those identified by Biti. “In my view, the main risk to the economy remains the politics, instability and uncertainty created by the unclear implementation of indigenisation laws. The economy cannot grow under such uncertain conditions,” he said.
Militating against growth were electricity supply challenges, where the country was now producing a quarter less electrical power than it did three years ago. Coupled with liquidity challenges, these two forces were combining to lower local productivity. The gap was being filled by imports whilst the country was not exporting much. This explained the ballooning balance of payments position.
It was not clear how the BOP deficit was being funded but this was clearly not sustainable and would implode any time, the professor warned. It was the negative balance of payments position that was a drain on domestic liquidity.
While Finance minister Biti thought local banks might be funding the BOP, Hawkins believed that it was diaspora remittances and “mattress” money being recycled outside the banking sector that was partially funding the BOP.
“In theory, the accumulating external debt arrears are also funding the BOP, as last year we borrowed perhaps US$1 billion and accummulated a further $650 million in arrears,” he said.
Bulawayo-based economic analyst Eric Bloch believed GDP growth rates projected for this year were possible. “Growth in the economy is coming from a low base, making the 9,4% achievable in my view. However the other targets are unrealistically high,” Bloch said.
He said expecting US$600 million from diamonds was unrealistic as the mines were still under development and there was still a lot of investment that needed to go into these mines so that they could reach full production. He also argued that diamond markets were depressed at the moment, given huge economic problems in major markets such as Europe.
“I would say Biti will be lucky to get US$300 million in 2012,” Bloch said. Turning to the major downside risks facing the economy, Bloch identified the major risk as the inability to attract investment due to the way the indigenisation laws were being implemented.
“I have always said that we need indigenisation, but it needs to be managed in a way that attracts investment. At the moment we are only getting limited investment mainly from the Chinese, whom we are giving special concessions,” Bloch said.
He said the other important risks to Biti’s budget and MTP were that Zimbabwe would need recourse to substantially increased food imports due to poor rains this year.
“We will be lucky to harvest 500 000 metric tonnes when we need 1,8 million tonnes to feed our people. The increase in imports will worsen the trade balance, increase the cost of food and increase inflation pressures,” he said.
Bloch also said the rapid decline in utility services was negatively impacting on industry. Limited electricity supplies to industry was reducing industrial production and increasing the costs to industry, also leading to higher inflation, whilst iIliquidity of the financial sector would result in further output declines as the country experienced company closures across the economy.
“There is need to accelerate the privatisation of state enterprises and to rein in government spending for the targets to be remotely achievable, Bloch said