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14/07/2014 00:00:00
by Business Reporter
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THE International Monetary Fund (IMF) has urged the government to fully implement its revised fiscal plan for 2014.

Government has identified revenue measures and expenditure cuts, and plans to roll over a fraction of domestic maturities falling due. If fully implemented, these measures could result in a budget surplus of approximately 1½ per cent of GDP in 2014.

However, the IMF said while efforts to face the financing requirements were commendable, the mix of measures proposed seemed to rely excessively on spending cuts.

These cuts may further depress prospects for the economy in the short and medium term (as they include drastic reductions in capital spending), and do not appear sustainable.

Finance Minister Patrick Chinamasa is expected to present his mid-term review when he returns from China next week.

This comes as the  Confederation of Zimbabwe Industries (CZI) is projecting that capacity utilisation will decline to about 30 percent this year from 39.6 percent recorded in 2013 while statistics from ZCTU show that 2,065 employees lost their jobs in the six months to June.

This was on the back of continued weakness in the operating environment characterised by significantly depressed demand on the domestic market and weakening of competitiveness of many domestic producers due to the fall in value of South African Rand against the United States Dollar during the 2012/13 period.

The manufacturing sector has been hit hard by the sharp appreciation of the US dollar, the main currency in use in the country, with the IMF estimating an over-valuation of the Zimbabwe’s exchange rate of between 17% and 24%. This, according to the IMF, makes the economy highly uncompetitive against imports.

In addition, the manufacturing sector was also hit by erratic power supplies meaning firms had to invest in generators, thereby pushing up the cost of production.

"This has ultimately made local products uncompetitive to those in the region," said the Ministry of Finance in its economic report for May.

The shortage of long-term financing has also made retooling a tall order leaving companies stuck with antiquated equipment. This has also increased the cost of production.

The ministry notes that, in the outlook, the manufacturing sector depends on the speed with which economic actors and policymakers move to implement policy initiatives designed to increase capital inflows into the country.


There is also a need to improve the business environment in Zimbabwe to enable local manufacturers to improve their competitiveness.

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