Business / Economy
Finance minister Tendai Biti to present his mid-term budget
17 Jun 2011 at 06:01hrs | Views
FINANCE Minister Tendai Biti is expected to outline a range of measures to tame the external debt when he presents his mid-term budget and attract foreign direct investment .
While indications are that a supplementary budget is inevitable after the civil service was promised a salary increase in the second half of the year, the minister is likely to continue with cash budgeting.
Zimbabwe, emerging from a decade of economic contraction, is saddled with a ballooning debt estimated at US$7 billion and is struggling to attract capital required to boost the fragile economy.
The debt, which is accruing at an annual interest of US$300 million, is more than 100 percent of the country's GDP.
Addressing legislators in the House of Assembly, Minister Biti said the economy would only grow if industry secured investment capital.
He said Treasury was US$90 million below target making it impossible to meet the 2011 budget of US$2,7 billion.
"In the first half of the year, the economy has not been performing. We are US$90 million below target. In other words, if this economy has to meet the US$2,7 billion budget, we have to collect an average of US$229 million per month.
"We are not collecting that, in fact the highest we have collected this year was US$213 million in March, US$184 million in April and US$164 million in May. So we actually have a downward graph.
"You have the irony that you have got huge demand on the fiscus but the revenues are depleting," Minister Biti said.
In his 2011 Budget, the minister projected a 9,3 percent GDP growth rate for 2011, supported by growth of 44 percent in mining and 19 percent in agriculture.
The country's manufacturing sector, which is operating below 50 percent capacity utilisation, is also expected to grow by 6 percent.
However, the minister recently indicated that the country has the potential to grow above the targeted 9,3 percent.
"Capital is at the epicentre of the collapse of our industries. This country needs capital; with capital you can replace old machinery that most industries are using.
"Sables is using an old method that uses massive power to produce. We are still using old manual methods which are 23 years behind," said Minister Biti.
He said if recapitalised, the local manufacturing sector had the potential to penetrate the regional market.
"The solution is to make our industries competitive and becoming competitive requires capital," said Minister Biti, emphasising that the local market was flooded with imports as a result of sluggish industrial productivity.
The minister is also expected to keep a tight lead on inflation that has remained in single digits since last year.
This week, the International Monetary Fund dispatched a team of advisers to help Government craft the mid-term budget statement which is to ensure the economy grows 9,3 percent this year.
IMF has noted that the macro-economic outlook for 2011 remains highly uncertain, although the short-term growth prospects for mining remain strong.
The impediments for further economic growth include the likely substantial fiscal expenditure, financial sector vulnerabilities and weakness in the business climate.
Nonetheless, a timely addressing of the policy issues could see the strong growth momentum being sustained. The fiscal gap is a result of wage bill overruns and a large stock of outstanding domestic payments arrears accumulated by the end of 2010.
"This economy can easily have a double-digit growth rate of 14 percent. Within the next three years you can have a US$30 billion economy but you will not do that unless you are able to deal with your politics, the question of the land, and the issue of having security on land, whether it is a lease or a title deed.
"You need a security document so that you can deposit with a banker to get genuine capital that you can use for your farming," he said.
Minister Biti added that Zimbabwe needs capital from overseas development assistance.
He said at the moment there was no vote of credit, making it difficult for the economy to perform.
"We need genuine friends to assist us. We have no vote of credit, we are not getting money from the East, South, West and the North.
"Our revenue as a percentage of our GDP is 30 percent, which is the highest in sub-Saharan Africa, higher than even South Africa, which is 27 percent.
"What this means is that 30 percent of our economy is coming from our own revenues. In most countries on the African continent, the ration should be 15 percent; we are double and we are 30 percent.
"This means that there is an unnecessary burden on Zimra and Treasury," Minister Biti said.
Settling the arrears owed to the World Bank, African Development Bank and IMF, among other lenders and attracting foreign direct investment would be necessary ingredients to grow the economy.
Since independence in 1980, the budget has widely used financial budgetary support from international lenders. This partly reflected the existence of structural rigidities in the domestic markets that limited resources mobilisation by Government.
Exclusive reliance on external borrowings resulted in accumulation of huge obligations, and in 1999, the country defaulted on its payment obligations.
The accumulation of arrears impacted negatively on the country's creditworthiness, resulting in en-bloc withdrawal of financial support by the traditional financiers.
While indications are that a supplementary budget is inevitable after the civil service was promised a salary increase in the second half of the year, the minister is likely to continue with cash budgeting.
Zimbabwe, emerging from a decade of economic contraction, is saddled with a ballooning debt estimated at US$7 billion and is struggling to attract capital required to boost the fragile economy.
The debt, which is accruing at an annual interest of US$300 million, is more than 100 percent of the country's GDP.
Addressing legislators in the House of Assembly, Minister Biti said the economy would only grow if industry secured investment capital.
He said Treasury was US$90 million below target making it impossible to meet the 2011 budget of US$2,7 billion.
"In the first half of the year, the economy has not been performing. We are US$90 million below target. In other words, if this economy has to meet the US$2,7 billion budget, we have to collect an average of US$229 million per month.
"We are not collecting that, in fact the highest we have collected this year was US$213 million in March, US$184 million in April and US$164 million in May. So we actually have a downward graph.
"You have the irony that you have got huge demand on the fiscus but the revenues are depleting," Minister Biti said.
In his 2011 Budget, the minister projected a 9,3 percent GDP growth rate for 2011, supported by growth of 44 percent in mining and 19 percent in agriculture.
The country's manufacturing sector, which is operating below 50 percent capacity utilisation, is also expected to grow by 6 percent.
However, the minister recently indicated that the country has the potential to grow above the targeted 9,3 percent.
"Capital is at the epicentre of the collapse of our industries. This country needs capital; with capital you can replace old machinery that most industries are using.
"Sables is using an old method that uses massive power to produce. We are still using old manual methods which are 23 years behind," said Minister Biti.
He said if recapitalised, the local manufacturing sector had the potential to penetrate the regional market.
"The solution is to make our industries competitive and becoming competitive requires capital," said Minister Biti, emphasising that the local market was flooded with imports as a result of sluggish industrial productivity.
The minister is also expected to keep a tight lead on inflation that has remained in single digits since last year.
This week, the International Monetary Fund dispatched a team of advisers to help Government craft the mid-term budget statement which is to ensure the economy grows 9,3 percent this year.
IMF has noted that the macro-economic outlook for 2011 remains highly uncertain, although the short-term growth prospects for mining remain strong.
The impediments for further economic growth include the likely substantial fiscal expenditure, financial sector vulnerabilities and weakness in the business climate.
Nonetheless, a timely addressing of the policy issues could see the strong growth momentum being sustained. The fiscal gap is a result of wage bill overruns and a large stock of outstanding domestic payments arrears accumulated by the end of 2010.
"This economy can easily have a double-digit growth rate of 14 percent. Within the next three years you can have a US$30 billion economy but you will not do that unless you are able to deal with your politics, the question of the land, and the issue of having security on land, whether it is a lease or a title deed.
"You need a security document so that you can deposit with a banker to get genuine capital that you can use for your farming," he said.
Minister Biti added that Zimbabwe needs capital from overseas development assistance.
He said at the moment there was no vote of credit, making it difficult for the economy to perform.
"We need genuine friends to assist us. We have no vote of credit, we are not getting money from the East, South, West and the North.
"Our revenue as a percentage of our GDP is 30 percent, which is the highest in sub-Saharan Africa, higher than even South Africa, which is 27 percent.
"What this means is that 30 percent of our economy is coming from our own revenues. In most countries on the African continent, the ration should be 15 percent; we are double and we are 30 percent.
"This means that there is an unnecessary burden on Zimra and Treasury," Minister Biti said.
Settling the arrears owed to the World Bank, African Development Bank and IMF, among other lenders and attracting foreign direct investment would be necessary ingredients to grow the economy.
Since independence in 1980, the budget has widely used financial budgetary support from international lenders. This partly reflected the existence of structural rigidities in the domestic markets that limited resources mobilisation by Government.
Exclusive reliance on external borrowings resulted in accumulation of huge obligations, and in 1999, the country defaulted on its payment obligations.
The accumulation of arrears impacted negatively on the country's creditworthiness, resulting in en-bloc withdrawal of financial support by the traditional financiers.
Source - TH
