Treasury growth projections unlikely to be met: Analysts

By The Standard | Sep. 16, 2012

ZIMBABWE’s economy is in a state of limbo as growth projections made by Treasury are not likely to be achieved, economic analysts have said.

Report by Our Staff In his state of the economy report for July to August 2012, Finance minister Tendai Biti said the economy remained depressed, with funding challenges for both the private and public sectors, despite the prevailing stable macro-economic environment.

Exports and imports maintained an upward trend, cumulatively reaching US$2,16 billion and US$5,1 billion respectively by end of August 2012.

However, this gave a US$3 billion trade gap, worsening the trade deficit.

He said major challenges bedevilling the economy included revenue underperformance, an acute liquidity crunch, underfunding of government programmes, low foreign investment and a continued high debt overhang blocking any new financing.

In his Mid-Term Fiscal Policy review statement, Biti cut growth projections to 5,6% from 9,4% and attributed this to the underperformance of the diamond revenue.

Economist, John Robertson, said the 5% economic growth expected this year was highly unlikely to be attained. “We would really be lucky to grow by 2,5% this year, as it is difficult to tell where that growth will come from,” said Robertson.

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“Although gold production was up 13%, low prices countered this development. Tobacco production improved greatly, but this sector alone is insufficient to cater for the economy’s needs.”

He said subdued prices almost cancelled out improvements witnessed.

Mineral exports shipments accounted for the bulk of exports at 70,7%, due to high global demand and improved capacity utilisation, followed by tobacco at 12,3%, manufacturing at 7,9%, and agriculture at 8,5%. In July, revenues stood at US$257,5 million while the preliminary figure for August stood at US$263 million against targets of US$271,2 million and US$280,7 million respectively. Biti has for long argued that Treasury was receiving insufficient remittances from diamond sales, a major factor that has affected government’s expenditure plans.

Consequently, Treasury earlier this year revised the national budget downwards from US$4 billion to US$3,4 billion.

Economist, David Mupamhadzi, said government’s failure to undertake critical development projects would negatively affect the economy as the nation’s needs remained high. “Government cannot meet expenditure prioritised for the year. this will adversely affect service delivery as well as expenditure aimed at infrastructure development critical for economic recovery,” he said.

He said government should seek alternative sources of finance and come up with a legal institutional framework for Private-Public Partnerships. Despite the relative economic stability achieved with the inception of multiple currency use, foreign investment has not been as forthcoming due to government policy inconsistency that forces investors to adopt a “wait and see” approach.

The investor apathy due to perceived country risk, has also partly led to liquidity challenges on the domestic market.

During the period under review, bank loans and advances to the private sector increased by 5,02% to US$3,23 billion.

Economic commentator, Eric Bloch, said the banking sector’s loan contribution in this regard to the private sector was too minimal to have a meaningful impact on the economy. “All businesses were left severely under-capitalised in the aftermath of the hyperinflation experienced in 2008. There is need for substantial recapitalisation to get industry ticking again,” he said.

Biti recently travelled to South Africa to meet his counterpart Pravin Gordhan requesting a US$100 million budgetary support.

The South African government indicated last week that it would open its purse if Zimbabwe negotiated for the financial aid in the letter and spirit of the Global Political Agreement, which gave birth to the coalition government in 2009.