Economy in slowdown

Tendai-Biti-Page-142.jpg

FINANCE minister Tendai Biti has projected the country’s trade deficit will widen to US$2,8 billion this fiscal year, as the local industry continued to be strained in capacity.
Presenting the mid-term fiscal policy statement review on Wednesday, Biti said the widening trade gap, resulting from total imports of US$8,2 billion against exports of US$5,1 billion, would have a very negative impact on the country’s current account deficit.
“Capital inflows, which ordinarily finance the current account deficit, continue to underperform as reflected through insignificant foreign direct and portfolio investment as well as overseas development assistance,”Biti said.
He revised the budget downwards from US$4 billion to US$3,640 billion, in an environment where expectations and resource demands are high.
Biti said the buoyant expectations and ambitious targets of the 2012 budget had been systematically devalued by a number of downside risks, which included a poor rainy season in 2011; policy inconsistencies and uncertainties undermining investor confidence; lack of capital and the absence of alternative financing instruments; revenue underperformance against a high and unsustainable wage bill; and the crowding out of social and infrastructure spending.
However, according to the IMF, Zimbabwe’s budget for this year would be out by US$838 million due to an expected revenue shortfall of US$640 million and additional fiscal spending of US$198,1 million.
According to the IMF’s recently-concluded 2012 Article IV consultations, the original revenue projection of 37% of GDP (6,7% more than in 2011), included diamond dividends at 5,5% of GDP.
But the revenues had underperformed, resulting in government revising projected diamond dividends downwards to US$100 million from US$600 million. This creates a shortfall of US$500 million. The IMF also estimated that tax revenue would fall short by US$140 million.
Biti said there would be various downside risks to the economy from the second quarter and into the last half of the year.
“These include the failure to realise budget revenue targets and reduced demand for export commodities, with a negative bearing on overall GDP growth,” Biti said.
Mines minister Obert Mpofu recently said that while diamond production would maintain its upward trend and was on course to meet the targets set for 2012, revenue would not meet the US$600 million mark set by Treasury as the major company mining in the area was under sanctions.
Mpofu said initially the ministry had set a monthly target of US$54 million, but would not meet it because of the sanctions on the Zimbabwe Mining Development Corporation.
Biti said that contrary to last year’s projections that GDP growth would be 9,4% this year, indications were that the economy would shed almost four percentage points to only grow by 5,6%. This fell short of the MTP annual average target of 7,1%.
“The slowdown in GDP growth is a reflection of the underperformance of some key sectors such as agriculture and tourism,” said Biti.
The IMF Article IV Consultations’ report notes that expenditure originally budgeted would increase by some 3,5% of GDP on account of higher capital outlays and full-year effects of the 2011 pay increases would rise further by US$198 million due to unbudgeted increases in employment costs, including employee allowances, in spite of efforts to resist pressure to increase base salaries.
The mission also identified some further fiscal pressures from higher-than-budgeted cash interest payments and costs arising from transporting grain from the northern parts of the country to the drought-hit south. — Staff Writer.

Comments are closed.

Top