UPDATE 1 – Zimbabwe economic growth seen at 2,7pct in 2016, foreign funding key to recovery

UPDATE 1 – Zimbabwe economic growth seen at 2,7pct in 2016, foreign funding key to recovery

By Nelson Banya, Kuda Chideme and Alfonce Mbizwo, HARARE, November 26 (The Source) – Zimbabwe’s finance minister Patrick Chinamasa on Thursday said the economy will expand by 2,7 percent in 2016, from 1,5 percent this year, adding that the country’s growth prospects hinge on plans to clear arrears to international lenders by the first quarter next year, which will unlock fresh funding for the stuttering economy.

The southern African nation owes the IMF, World Bank and African Development Bank $1,8 billion and last month had its plan to repay foreign creditors about $7 billion accepted which could lead to financiers resuming lending to the country next year.

Zimbabwe last received funding from the IMF in 1999 but its voting rights were restored in February 2010 after a seven-year suspension. Presenting the country’s 2016 budget in Parliament, Chinamasa said should Zimbabwe successfully complete a monitoring programme that ends in December; Harare could start talks about funding.

“The country’s recovery programme requires external funding, in light of limited domestic resources,” Chinamasa said in his address to Parliament, attended by President Robert Mugabe.

Chinamasa proposed a flat $4 billion budget for 2016, with revenues expected at $3.85 billion. The finance minister said the projected $150 million deficit, about 1.1 percent of GDP, would be funded from local borrowings.

Chinamasa said up to September 2015, government had run up a $527 million budget deficit, also funded through local borrowing, a situation he said was undesirable as it crowded out productive sector borrowings.

Government employment costs are expected to take up $3,919 billion of total revenues. Chinamasa said government would save up to $170 million after cleaning up the wage bill, mainly targeting youth officer and agricultural extension worker staffing levels, as well as the cessation of payment of salaries to teachers at non-government schools and allowances for student teachers.

Security ministries – home affairs ($396 million) and defence ($356 million) – will take up a combined 19 percent of the budget. Education, at $810 million, gets the largest ministerial allocation in the budget. Health has been allocated $330 million.

The economy, which has previously largely been propelled by the mining sector until international metal prices began to slide, is expected to expand by 1.5 percent in 2015, underpinned by tourism, the financial services sector, construction and communications, Chinamasa said. Growth for 2016 is seen at 2.7 percent, Chinamasa said.

Inflation is seen averaging -1.2 percent in 2016, Chinamasa said.

The trade deficit is seen lower at $2,5 billion from $2,8 billion this year. Exports are expected to grow to $3,7 billion next year from $3,4 this year while imports are expected to decline slightly from $6,3 billion in 2015 to $6,2 next year.

 

Reviving agriculture

Chinamasa said agriculture will require $1,7 billion in support to cover 2.1 million hectares. The state will also give free cotton inputs for the next three seasons to revive cotton production and has taken over the Cotton Company of Zimbabwe (Cottco) to drive the initiative. Cottco, the former Cotton Marketing Board, was privatised in 1994.

Arrears for maize deliveries by farmers have been paid up, Chinamasa said.

The government will prioritize the rehabilitation and development of irrigation in the face of the threat of climate change which will be funded by $7 million from a budget of $8,6 million from development partners

The state was also working with the European Union and the United Nations Development Programme (UNDP) to resolve issues around security of tenure for farmers resettled under the land reform programme to come up with tradable lease agreements.

 

Mining output seen higher

Gold output is seen at 24 tonnes in 2016 from the expected 18.7 tonnes this year. Gold production peaked at 29 tonnes in 1999.

Chrome output expected at 416,000 tonnes in 2016 from 211,000 tonnes this year while platinum seen at 13,290 tonnes from 12 tonnes.

Diamond output will rise to six million carats next year from 3,360 carats this year.

Chinamasa said government will resuscitate the mothballed Kamativi tin and Zvishavane asbestos mines, Shabanie and Mashaba Mines and create 3,000 jobs.

On the indigenisation policy for mines, he said 51 percent local ownership is free carry, with underlying resource being the local equity.

He said an unnamed investor has completed a feasibility study for 300 megawatt gas plant in Lupane.

To encourage the mining, agriculture, manufacturing and energy sectors to retool Chinamasa said government would remove Customs duty and VAT for equipment valued at $1 million and above, with effect from 1 January 2016.

With effect from 1 January 2016 Government will reduce royalties on gold to 3 percent from 5 on incremental output of gold using the previous year’s production as a base year, so as to promote output by artisanal miners.

Chinamasa said government would write off a $45 million debt incurred by insurance companies between 2009 to July 2015 and reduce Stamp duty on policies of insurance in retrospect to $0.01, with effect from 1 February 2009 to 30 July 2015.  In return Insurance companies have pledged to subscribe to bonds amounting to $30 million in support of infrastructure development.

Chinamasa added protective clothing, milk, eggs, vegetables, fruits, rice, cereals and margarine to list of goods exempted from VAT with effect from January 1 next year.

He also proposed to exempt from tax, interest earned on deposits with a tenure of more than 12 months to encourage long term savings.