Budget unsustainable, shaky

via Budget unsustainable, shaky – Analysts – The Standard December 22, 201 by Kudzai Chimhangwa

THE 2014 growth projections by Finance and Economic Development minister, Patrick Chinamasa in his national budget were unsustainable and premised on shaky ground, economic analysts have said.

Chinamasa projected a growth rate of 6,1% next year driven by a strong recovery of agriculture and improved performance of the mining and construction sectors.

The projected growth tallies with the one in the economic blue-print, the Zimbabwe Agenda for Socio-Economic Transformation (Zim Asset).

Zanu PF sees Zim Asset as the driver of economic revival.

Godfrey Kanyenze, director of the Labour and Economic Development Research Institute of Zimbabwe (Ledriz) said the projected growth in mining was a mirage as prices of commodities, except nickel, were projected to fall next year.

“These growth projections are not in sync with the global commodity trends and do not logically derive from the current situation analysis,” Kanyenze told a meeting of editors on Friday.

Kanyenze said there was nothing in the budget to address the structural deformity in the country typified by rising imports at the expense of exports accelerating the de-industrialisation.

Chinamasa announced a raft of stringent measures for the mining sector which include a ban on exporting of raw platinum from 2014 onwards, a ban on the export of unrefined gold while Value Added Tax on the export of rough diamonds will be introduced at a date to be announced.

Speaking at a Confederation of Zimbabwe Industries (CZI) post budget meeting in the capital last week, Chamber of Mines of Zimbabwe president, Alex Mhembere said the mining sector would continue to look at sustainability of operations in light of increased costs to operators introduced in the budget.

“Metal prices are headed southwards, so we will need to look if margins will enable miners to stimulate production under current conditions,” he said, adding that beneficiation was indeed an imperative.

The ban on exporting chrome ore was upheld despite small chrome producers accumulating huge stockpiles of chrome ore as a result of limited absorptive capacity of local smelting companies and the slump in ferro-chrome prices on the international markets.

Government expects that in 2014, growth in exports will be hinged on the overall performance of the economy as they are forecasted to reach US$5 billion.

The mining sector already contributes more than 50% of this figure.

Chinamasa also proposed the introduction of an export tax on unbeneficiated platinum and diamond.

This, according to analysts, will increase tax revenue inflow but could also impact on output.

“. . . the implementation of the tax proposal has to be carefully considered as it may result in reduced production of the minerals, at a time when there is probably no sufficient capacity, skills and technology for the full value addition to the minerals in question,” ZB Financial Holdings said in an analysis of the budget.

BancABC economist, James Wade dismissed any possibilities of increases in interest rates or bank charges as competition for deposits had intensified, adding that the revoking of the memorandum of understanding between government and banks would lessen the burden on “fragile banks”.

Speaking on the sidelines, one participant remarked that there should not be any fragile banks in the first place operating in the sector.

In his Budget statement, Chinamasa issued a stern warning, that government would not hesitate to regulate bank charges and interest rates if banks failed to self-regulate.

With regard to issuance of Treasury Bills, Wade said the expected uptake by the financial sector would need to be gradual as market conditions dictated otherwise.

The domestic debt stock of US$754 million will be addressed through the issuance of five-year government paper to local financial institutions and other players who were owed by the Reserve Bank, and this will be done by March 31 2014.

The debt instruments to be issued will be in the form of government securities that will be accorded Tier 1 capital status.

“If there is anticipation that banks can absorb Treasury Bills, then that will have to be gradual as there is need for buffers to be in place,” he said.

Zimbabwe currently has a high loan to deposit ratio owing to the transitory nature of deposits.

Throughout most of 2013, deposits continued to be transitory in nature with demand deposits dominating at 52,7% of total deposits, followed by under 30-day deposits at 33%, while long-term deposits continued to lag at 15%.

The dominance of demand and short-term deposits means that banks cannot lend long-term capital, which the productive sectors of the economy desperately need.

“The lack of FDI is one of the issues really affecting our lives,” said Wade.