eBusiness Weekly
Kudzanai Sharara
The 6,3 percent economic growth rate that the country is expected to achieve this year is mostly to do with excessive Government spending, this is according to the 2019 Pre Budget Strategy Paper (Strategy Paper) that was presented to Cabinet by Finance and Economic Development Minister Professor Mthuli Ncube.
Zimbabwe earlier this year revised its growth projections to 6,3 percent from the previous projections of 4,5 percent, riding on strong performance in sectors of agriculture (12,4 percent), mining (26 percent) and construction (14 percent).
“In addition, growth was also spurred by slight recovery in consumption (0,9 percent), particularly by households, coupled with improved growth in exports and imports (1,1 percent),” reads the Strategy Paper.
Investment by the private sector (-0.2 percent) is, however, expected to slow down from the previous year, owing to the crowding out effect associated with fiscal deficit financing.
The Strategy Paper has, however, revealed that the quality and sustainability of this projected growth is susceptible to a number of risks relating to rising inflation, foreign currency shortages and depressed investment, among others.
According to the Strategy Paper, the growth in 2018 has been driven by Government spending constituting 4,6 percent of the 6,3 percent growth.
This was largely in the form of “grain and inputs procurement, extension of loans to parastatals and to some extent, hard infrastructure projects such as dam construction and roads rehabilitation”.
Government is expected to spend on unbudgeted salaries amounting to $500 million grain procurement, $475 million crop input support, $650 million roads construction, $350 million capitalisation of public institutions, $460 million among others.
The manner and type of spending has, however, meant by end of 2018, the country would have an overall fiscal deficit of $2,3 billion, which is 59,4 percent of the previous year’s revenue against 20 percent of the previous year’s revenues, as stipulated in the Reserve Bank Act.
The above position has far reaching consequences in the economy in terms of Government crowding out private sector lending, reads the Strategy Paper.
“Additionally, continued payment of Government obligations through an (RBZ) overdraft will also worsen the liquidity challenges in the economy.”
