Zimbabwe’s revenue collection tumbles, Treasury

via Revenue collection tumbles, Treasury 14/05/2014 NewZimbabwe

REVENUE collection continues to tumble and there is need to urgently introduce a cocktail of measures to address the problem which is adversely impacting economic growth, a government official has said.

Principal Director in the Finance Ministry, Pfungwa Kunaka said Monday that during the first quarter of 2014 the economy has shown signs of slowing down, signifying inherent challenges.

He said notable indicators reflective of the slowdown included a decline in revenue collections during the first quarter which underperformed by 3.9% compared to the corresponding period in 2013.

“Value Added Tax collection, which indicates the level of aggregate demand in the economy, declined by 15.1% during the first quarter of 2014 compared to 2013,”said Kunaka during an economic forum organised by captains of industry in Mutare.

The treasury official said severe liquidity constraints in the financial sector which have seen domestic credit growth of only 8.6% between February 2013 and February 2014 compared to about 34% in 2012/13 and 50% in 2011/12 have also impacted negatively on the economy.

Kunaka said credit risk remained a key challenge as evidenced by the Non-performing loans (NPL) ratio which increased to 16.63%as at 31 March 2014, up from 15.92% as at 31 December 2013.

“This trend is partly a reflection of macroeconomic challenges that have militated against borrowers’ ability to service loans,” he said.

“The productive sector continues to face decreasing demand due to tight liquidity in the economy, lack of affordable long term funding, unreliable supply of utilities such as power and water and influx of cheap imports owing to the appreciation of the real effective exchange rate,” said Kunaka.

He added that although the 2014 national budget increased some tariffs on a number of imports with a view to levelling the playing field, the benefit is not being fully exploited due to the prevalence of other perennial challenges.

“The dire state of the manufacturing sector is also being reflected through the increasing trend of company closures and the scaling down of operations,” he said.

According to 2013 NSSA report, more than 2,893 companies, of which the manufacturing sector accounted for the majority, closed by the end of December. This affected 55,000 employees had to be retrenched.

Pfungwa also said information from the Master of the High Court indicated that 9 companies were put under final liquidation in one day in the month of February 2014.

“Sectors affected include; textiles and clothing, construction, paper and printing. The above development requires urgent measures in support to revive the sector,” he said.

Of concern, Pfungwa said, was a decline in essential imports such as raw materials, equipment and machinery which are critical to supporting production.

“Month-on-month performance of high frequency indicators reflects evidence of economic slowdown during the first quarter of 2014.

“Government and, in particular, the Ministry of Finance and Economic Development is currently ceased with these challenges with a view to providing a solution so as to keep the implementation of Zim-Asset on track,” said Pfungwa.

He also suggested that it was critical for the country to establish a track record of loan repayments to China and other emerging markets in order keep these sources of funding flowing.

“In 2013, it is estimated that a total of US$1.8 billion was received as remittances in the country. Diaspora remittances have grown to become an important source of funds that can be leveraged for national development,” he said.

Currently CBZ Bank is working on modalities of a $200 million diaspora bond which will be guaranteed by Afreximbank, according to Pfungwa.