LAST week the Minister of Finance Tendai Biti delivered a state of the economy report for July and August 2012 as an update on fiscal and other macro-economic developments since his mid-year fiscal policy review two months ago.
Report by Eric Bloch
Biti noted that “Zimbabwe’s economy remains depressed, with funding challenges for the private and public sectors”, albeit there is a “prevailing stable macroeconomic environment and some output improvements in sectors such as mining”.
Apart from that reference to the improvement, he also cited stability of inflation, at approximately 4%, as a positive. In so doing he did not concede that the rate of inflation on certain absolute essentials key to the constrained expenditures of low income-earners is significantly greater, with attendant continuing hardships for many of Zimbabwe’s economically oppressed population. Biti justly voiced concern at continuing public finance challenges.
He disclosed that state revenue inflows were US$257, 4 million in July, against a target of US$271,2 million, and in August totalled US$269,2 compared to anticipated revenues of US$280,7 million. Thus government collected approximately US$25,3 million less than it expected, adding to its expenditure constraints.
Also of major concern is that financial sector deposits rose by a niggardly US$0,05 billion in July to US$3,64, resulting in continuing severe liquidity constraints. He was also justly concerned that that sector’s lending ability remained minimal and generally of a very short-term nature, while interest rates continue to be exceptionally high — in some instances 30%.
The minister recognised that ongoing primary economic challenges include:
lContinuing revenue underperformance on the part of the state, and consequential underfunding of various urgent government programmes (including agriculture, infrastructure, census and other social services);
- Lack of liquidity constraining banks from adequately funding productive sectors;
- Low foreign investment and therefore low capacity utilisation, and high levels of unemployment;
- Continuing high national debt overhang, a major contributor to the inability to source new financing.
Biti noted that as at August 30 2012, tobacco sales amounted to 144 million kg at an average price of US$3,66 per kg, compared to sales in the same period of 2011 of 131,9 million kg at an average price of US$2,74 per kg. Total tobacco sales revenues were at US$526,6 million, against US$360,9 million last year.
By mid-August an estimated 304 112 tonnes of seed cotton had been delivered, being 9% greater than anticipated, and grain deliveries were 63 278 tonnes, of which 63 158 tonnes were maize, 80 tonnes were wheat and 40 tonnes were small grains. All these volumes were far below national needs.
The mining sector has continued to be a substantive performer, with gold production for the seven months to July 2012 at 7 799,5 kgs, the performance being enhanced by a significant rise in international gold prices. In his review, Biti did not address other areas of mining sector production as he was still awaiting the relevant data.
The review further noted the ongoing decline in electricity generation which in July fell to 1 058MW, against 1 104MW in June. Zimbabwe’s inadequate and highly erratic energy generation continues to be a major hindrance to performance of almost all economic sectors, especially for the manufacturing, mining and agricultural sectors.
Reverting to the subject of Zimbabwe’s exports which are critical to any major revival of the economy, Biti disclosed details of export performances in the eight months to August 2012, the greatest performer being the mining sector which generated US$1580,4 million, followed by exports of tobacco at US$273,9 million, other agricultural exports of US$190,1 million and manufacturing exports of US$177,6 million. Total exports were at US$2,24 billion but imports were more than US$5,1 billion.
As the minister was only addressing Zimbabwe’s actual financial outturns in the first eight months of 2012, his view did not address any policies to be pursued to enhance the economy in general, and the state’s financial circumstances in particular, and it must be anticipated that doing so will be a key element of his 2013 budget statement due to be presented to parliament in the next 10-12 weeks. However, the economy is in such a fragile state, with ongoing hardships and suffering for a majority of the populace. Government needs to pre-empt that statement through diverse, urgent actions including:
- Creation of a conducive environment for Foreign Direct Investment thereby creating employment opportunities, enhanced exports, import substitution and increased fiscal revenue inflows. This requires considerable modification of Zimbabwe’s indigenisation and economic empowerment policies, political stability, reconciliation with the international community, fiscal probity, and meaningful investment incentives.
- Privatisation of parastatals so that they reduce fiscal outflows.
- Heavy curtailment of unproductive state expenditure including reduction of travel costs, minimisation of bureaucracy and corruption, and a substantial reduction of the public service.
- Intensified efforts to obtain international debt forgiveness.
- Marked changes to import duties in order to protect Zimbabwean enterprises from competition from imported products caused by excessive export subsidies provided to many manufacturers in the Far East.
Were these — in addition to various other new fiscal policies — to be effectively pursued, real economic upturn would be achieved.