Chinamasa walks tight rope

via Chinamasa walks tight rope – DailyNews Live by John Kachembere  17 DECEMBER 2013 

Zimbabwe’s government is due to announce the National Budget on Thursday, amid mounting unrest.

Angry depositors have vandalised property at banks after caps were imposed on withdrawals — a sign of a deepening liquidity crunch in the country.

The maiden annual budget speech by Finance minister Patrick Chinamasa comes against a background of economic stagnation, rising unemployment standing at 80 percent and cash shortages.

Analysts have warned Zimbabweans not to expect much from the delayed 2014 National Budget as the country sinks into a second recession.

Chinamasa faces a daunting task of giving economic direction to a country that is slowly losing its growth momentum.

This comes as cash-strapped Zimbabweans are expecting the new government to live up to its election promises of providing 2,2 million jobs, improving social services, growing the economy and improving the quality of life of ordinary Zimbabweans, among other expectations.

Economist Christopher Mugaga said in view of the tightening liquidity crisis, Zimbabweans should not expect miracles from the new Treasury boss.

“We are looking at an approximately $4 billion budget but there are no significant changes to be expected,” he said.

Zimbabwe has struggled for direction since the elections and the recently unveiled economic blue print dubbed the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) has failed to excite the market.

Mugaga noted that declining metal prices and limited fiscal space will affect Chinamasa’s capacity to unveil adequate funding to critical areas such as health, agriculture, education and power generation among others.

The southern African country’s gross domestic product (GDP) growth fell from double-digit levels in 2010-2011 to an estimated 3,4 percent in 2013, reflecting weaker commodity prices, especially for gold and platinum as well as reduced diamond production.

Agriculture performed dismally this year due to poor rains and lack of farming inputs while capacity utilisation fell below 40 percent in manufacturing.

Once known as “the breadbasket of southern Africa” for its harvests, Zimbabwe now depends on international aid to feed a quarter of its 13 million people, following seizures by the government of thousands of white-owned farms.

Rather than redistributing land to poor black farmers, as Mugabe claimed happened, the government gave many of the best farms to leaders of the ruling party, Zanu PF. Most of the seized farmland now lies fallow because of acute shortages of seed and fertilisers.

Figures from the Zimbabwe Statistical Agency reveal that not a single new non-farm job has been created for 25 years, while the National Social Security Authority (Nssa) recently reported that 700 businesses have closed in Harare since 2009.

The trade gap is estimated at $3,5 billion this year or 26 percent of GDP, with exports down more than 10 percent in the past year, as a result of which the debt-stressed country, according to the IMF, is borrowing $1 billion per year offshore, pushing the foreign debt burden above 110 percent of GDP.

Tony Hawkins, a University of Zimbabwe economics lecturer,  says Chinamasa has to try to balance the spending promises with a deteriorating budget.

“Though the country is operating on a cash budget, the actual deficit is between $200 million and $300 million or 2 percent of GDP”, Hawkins said. “Since the central bank cannot print money in a dollarised economy, there is no scope for quantitative easing and little room for tax hikes.”

Hawkins noted the only way out was spending cuts or more offshore borrowing.

“China is the obvious option since Harare is not eligible to borrow from the multilateral agencies because of its $7 billion arrears”, Hawkins said.

“The previous national unity administration did sign a staff monitored programme with the International Monetary Fund (IMF) in midyear, but this is only a first step towards debt relief and eventual access to fresh funding from the IMF and World Bank, which, at best, is unlikely to materialise before 2015 or 2016.”

Tendai Biti, the former Finance minister, said Chinamasa must come up with a credible budget that seeks to resolve the burgeoning domestic arrears.

“The government has been borrowing to pay the wage bill, in the process committing the cardinal sin that you do not borrow for consumption or recurrent expenditure”, Biti said.

“To borrow close to $300 million, in a space of 100 days is irresponsible and unacceptable more so when it is being done behind the back of Parliament.”

Biti noted that government was living to pay wages alone.

“There has been de facto shut down of government. Ministries starved of resources have basically ground to a halt,” Biti said.