Biti slashed Zimbabwe's 2012 growth forecast to 5.6 percent

Zimbabwe has axed its 2012 growth forecast to 5.6 percent from the 9.4 percent projected earlier, Finance Minister Tendai Biti said on Wednesday, blaming a poor harvest, lack of donor funding and policy inconsistencies.

Zimbabwe registered expansion of 9.3 percent in 2011, the third straight year of growth after a decade of economic decline that peaked in 2008 when inflation hit 500 billion percent.

But the economy looks to be losing its momentum as a coalition government of President Robert Mugabe and rival Prime Minister Morgan Tsvangirai struggles to attract donor funding, while bickering over policy discourages foreign investment.

Biti said government revenues had stopped growing, a sign that the economy now needed foreign investment to expand production and boost jobs, especially in the manufacturing and mining industries.

"The first half of the year has been the most economically challenging in the last 40 months," Biti told parliament in a mid-year budget review.

"This economy needs foreign direct investment to increase this little cake into a bigger cake that will generate jobs."

Biti said the government would increase taxes on fuel and wheat imports in a bid to shore up state revenues, adding that this would not put pressure on inflation, which he still expects to be below 5 percent by year-end.

He said government wages, at 74 percent of total expenditure, were unsustainable.

Investors have stayed away, rattled by Mugabe's drive to force foreign miners to surrender at least 51 percent shares to black Zimbabweans and a more recent demand for foreign-owned banks to turn over majority shares to locals within a year.

Uncertainty over the date and conduct of elections due within the next year, has also unsettled investors given Zimbabwe's history of violent and disputed polls.

Government revenues are now expected to be $3.4 billion this year from an earlier forecast of $4 billion, largely due to poor revenue from diamonds from the eastern Marange fields, Biti said.

The government had expected to generate $600 million from sales of diamonds from Marange but had only got $41.6 million from 224,137 carats sold between January and June this year.

Agriculture production for the 2011/2012 season had fallen 5.8 percent, leaving a grain deficit of 445,000 tonnes, which would be partly met through imports by the private sector, he added.

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