FINANCE Minister Tendai Biti faces tough choices when he presents his half year economic review this week with the 2012 national budget already thrown off the rails by underperforming revenues with initial growth projections now clearly unachievable.
The US$4 billion 2012 National Budget had projected 9,4% economic expansion, underpinned by growth in the mining and agriculture sectors. But both sectors have failed to perform to expectations while liquidity challenges that have plagued the economy over the last few years remain.
The coalition cabinet recently held an emergency meeting over the economy after it emerged that revenues would this year fall far below expectations with Biti principally blaming the alleged non-remittance of money from diamond sales.
Prime Minister, Morgan Tsvangirai recently claimed only US$25 million had been received from diamond sales against projections of about US$600 million for the whole year.
Biti has already hinted he may have to revise downwards his growth projections and he will also be under pressure to find money for food imports after this year’s maize crop was hit by drought in some parts of the country.
Compounding his problems is the possibility of new elections this year which would have to be preceded by a constitutional referendum, all of them expensive exercises for which the government just does not have the money.
Analysts have also warned Biti will need to make available increased funding for economic performance enablers such as the energy ministry, in particular the power utility Zesa, as well as rehabilitate the country’s dilapidated telecommunications and roads infrastructure.
Economist Brains Muchemwa said corporate bankruptcy was on the rise and urged Biti to press for changes in the country’s labour and bankruptcy laws to safeguard corporate solvency and help create a soft landing for companies on the brink of collapse.
“Without these changes, the economy will remain fragile, and indeed government revenues will continue to exhibit sustained weakness,” he said.
“Government will need more creativity to broaden the tax revenue base in ensuring that the financing of the budget was sustainable in a manner that would be able to influence the macroeconomic activities more positively.”
Muchemwa also said the government must consider new taxation regimes for valuable mineral classes such as diamonds and platinum warning that without such changes incremental revenues from the normal taxation activities will continue to be fragile.
Economic consultant John Robertson has also urged Biti should allocate more money to sectors that have strong primary multiplier effects on employment creation so that the secondary effect on
government revenue creation would assist in repaying the country’s loans and put the economy on a sustainable growth path.
“We need to start creating the platform for reviving the defunct middle class. And the government, being the single largest player in the market now, should have the right priorities in place to create a
sustainable middle class to cultivate strong and rising domestic demand that will provide the vital anchor for growth,” Robertson said.
“An economy, just like a private company, needs to run on goodwill and competitive economic pricing. And with the dollarised economy, good times lie in waiting.”
Muchemwa added that Zimbabwe needed a strong private-public sector partnership framework that would revive its infrastructure much faster and put an end to fiscal antics of attempting subsidies on empty coffers.