eBusiness Weekly
Business Reporter
Zimbabwe’s economy is looking strong on agriculture after a good rain season but Finance Minister Patrick Chinamasa has warned sustained economic growth would depend on discipline and structural reforms across sectors – a swim or sink scenario.
Zimbabwe’s economy is looking strong on agriculture after a good rain season but Finance Minister Patrick Chinamasa has warned sustained economic growth would depend on discipline and structural reforms across sectors – a swim or sink scenario.
Presenting his Annual Budget Review for 2016 and Outlook for 2017 report, the Minister of Finance and Economic Development said efforts in boosting production in farming, improvements and interventions in manufacturing and better investment and monitoring in mining had put the economy on a growth path.
He however admitted that sustained growth faced threats from fiscal deficit, indiscipline in the financial sector which is showing through foreign currency shortages and overall lack of timely implementation of decisions from Government.
Minister acknowledged that in 2016, constrained fiscal space had left little discretion for Government to accommodate inescapable additional pressures without increasing recourse to domestic sources of borrowing for both operational, as well as for development projects.
“The combination of inescapable expenditure requirements, and revenue under-performance of $347.8 million, left public finances with a borrowing requirement of $1.4 billion in 2016,” he said.
Minister Chinamasa noted that failure to contain the budget deficit and borrowing requirements has serious economic and financial implications, especially when support to development expenditures to stimulate production is insignificant.
“Concerned with the rapid growth in the fiscal deficit, Cabinet directed that Government Ministries and Departments immediately adopt expenditure cost-cutting measures which will assist in restoring the fiscal deficit to sustainable levels”, Chinamasa said.
He added that the Cabinet directive is re-affirming previous positions taken in 2015 under which Treasury has progressively instituted various expenditure rationalisation measures related to standardisation of fuel allocation across Ministries, review of telephone and cellphone allowances, review of foreign travel per diem allowances; and use of Government vehicles.
Minister Chinamasa said the Government would continue to implement measures to reduce its wage bill, which remained unsustainably high at over $3.2 billion last year. A wage free, rationalization of allowances and foreign trips among others would continue to be implemented to address the wage bill.
“The Cabinet directive calls on line Ministries, Departments, as well as Independent Commissions to urgently proffer costed expenditure cost cutting measures that assist in reducing the current fiscal imbalances and improving value for money”, said Chinamasa, adding that Treasury has since issued Circular Number 1 of 2017 on 28 June 2017 to line Ministries in this regard.
He added that a Technical Committee, anchored by the Secretary to the Treasury and the Deputy Chief Secretary responsible for Modernisation of Government in the Office of the President and Cabinet and the Reserve Bank was also set up to operationalise implementation of the Cabinet directive.
“Development of specific actionable measures for final consideration by Cabinet is benefiting from submissions by Ministries on cutting expenditures and the fiscal deficit to sustainable levels. In taking the above decision, Cabinet also took into account Section 11 of the Reserve Bank Act which limits Central Bank overdraft lending to the State to 20 percent of the previous year’s revenue.
“Furthermore, Section 11 of the Debt Management Act provides that outstanding Government debt as a ratio of GDP should not exceed 70 percent at the end of any fiscal year”
Government last year incurred inescapable expenditure pressures that gave rise to larger borrowing requirements over the past year, in an environment of challenged tax revenue collections, were on account of drought mitigation, water and power projects, among others.
Drought mitigation related to grain importation accounted for, $371.2 million; agriculture recovery support initiative, $160 million; and other capital related programmes, $121.3 million.
In addition, interest payments were $120.2 million, against a target of $110 million. Of this, domestic interest payments amounted to $107.4 million, representing 90 percent of the total, while foreign interest payments were $12.8 million
He maintained that while Treasury Bills issuance had increased, Government had been able to honour all its obligations.
”The budget deficit was financed through TBs of $346.3 million, average maturity of 160 days, and Treasury bonds, $10 million, with average tenure of three years.”
The country’s unbalanced trade also remained a major challenge as exports totaled $3.7 billion in 2016 while imports stood at $5.7 billion.
Minister Chinamasa said a variety of initiatives to value add the exports and increase earnings were being implemented and improvements had started showing.
He said a huge debt, amounting to $11.3 billion at the end of last year continued to impact on the country’s ability to access cheaper funding from global financial institutions to invest in its infrastructure and other social amenities.
In line with its debt clearance program, Zimbabwe had paid about $107.9 million to the International Monetary Fund in October last year, he said.
“The next step entails resolving arrears to the other multilateral creditors, namely the African Development Bank, $642 million; the World Bank, $1.4 billion; the European Investment Bank, $294 million; and other multilateral institutions, as well as bilateral official creditors,” he said.
Minister Chinamasa maintained that Zimbabwe’s gross domestic economy would rise by 3,7 percent in 2017 from 0,7 percent in 2016, underpinned by strong performance in agriculture. Agriculture is estimated to yield a commendable 21,6 percent growth in 2017.
