By Kuda Chideme and Plaxedes Sibanda, HARARE, December 8 (The Source) – Finance minister Patrick Chinamasa on Thursday said Zimbabwe’s economy will grow by 0.6 percent in 2016, half of his previous projection, but is seen rising to 1.7 percent in 2017 backed by better performances in agriculture and mining sectors.
It represents a climbdown from 1.2 percent projected in the mid-term budget statement but is more optimistic than the projection of -0.3 percent by the International Monetary Fund. The IMF also projected a -2.5 percent growth for next year if the government fails to implement drastic reforms to cut expenditure.
Presenting a budget with a total envelope of $4,1 billion, Chinamasa said government expects to collect revenue of $3,7 billion. The wage bill will gobble $3 billion of the budget, down from $3,14 billion for this year while capital expenditure takes up $520 million.
Chinamasa said government would next year run a deficit of $400 million compared to $1.1 billion this year after government paid last year’s bonuses and December 2015 salaries this year.
Stands in lieu of bonuses for civil servants?
Like President Robert Mugabe in his State of the Nation address on Tuesday, Chinamasa skirted the contentious issue of bonuses for government workers this year.
But he said a deal for stands for civil servants would be partly paid for “through the 13th cheque whose modalities of implementation are to be negotiated, discussed and agreed.”
In his mid-term statement, Chinamasa proposed to freeze bonuses for two years to save government $180 million only for the proposal to be publicly shot down a couple of days later.
Diaspora remittances, now second main source of foreign currency after exports, stood at $649 million in the 10 months to October compared to $770.6 million over the same period in 2015.
The agriculture sector is seen recovering from the El Nino induced drought decline of -3.7 percent to a 12 percent growth driven by higher maize and tobacco output.
A modest growth of 0.9 percent in 2017 is expected in the mining sector with firmer international prices and increased output anticipated.
The economy’s relatively high import bill remains unsustainable at $5.35 billion in 2016, against exports of $3.365 billion while a downturn in overall export performance is estimated for 2016, with exports falling by 6.9 percent to $3.365 billion, from $3.614 billion last year.
Capital inflows — foreign direct investment, portfolio investment and loans — are expected to reach $692.4 million in 2016, against $1.2 billion recorded in 2015.
“Given the declining trends and low levels of capital inflows it is imperative that the country continues to expedite the re-engagement process with the international financial institutions,” said Chinamasa.
In a bid to attract FDI Chinamasa proposed tax incentives for investors setting up shop in the Special Economic Zones. Firms in the SEZ will be exempted from paying corporate tax for 5 years and will also be allowed to import capital goods and raw materials free of duty in that time.
While aggregate demand has remained depressed throughout 2016 Chinamasa said the issuance of bond notes would increase liquidity and spur private spending.
As at October 31, 2016, Zimbabwe’s public debt stood at $11.2 billion or 79 percent of GDP, of which $7.5 billion, 53 percent of GDP, is external debt. About $5.2 billion of that is in arrears, and leading to a deterioration of relations with major creditors and inhibiting access to new finance,Chinamasa added.
The domestic debt as at 31 October 2016, stood at $3.7 billion, representing 26 of GDP.
Chinamasa said the mismatch between revenues and expenditures required government to rationalises expenditures in line with sustainable financing capacity. He proposed a moratorium on treasury bill issuances and confining borrowing to concessional rates.
The 2017 budget sets aside $188 million for infrastructure and utilities, which will be complemented by resources from statutory funds, respective state owned enterprises, development partners and loans.
Total development partner support for 2017 is projected at $450.4 million, against $493.7 million availed in 2016. Of this amount $233.7 million is from bilateral partners, while $216.7 million is from multilateral partners.
Additional reporting by Simbarashe Zishiri and Ruth Ngwenya.