Murerwa slashes ministerial budgets

Murerwa slashes ministerial budgets

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By Staff Reporter

ZIMBABWE on Tuesday announced a cut in ministerial budget allocations of a combined US$171.4 million in an effort to reign in resurging inflation.

The Zimbabwe government, grappling with serious economic crisis and food shortages, also introduced a series of new taxes and announced a ban on public sector employment as part of efforts to raise revenue.

Announcing a mid-term fiscal policy review, Finance Minister Herbert Murerwa said the budget cut would entail deferment of projects that had not yet commenced, and those facing implementation difficulties due to foreign currency constraints, tender delays and lack of technical capacity.

He said affected expenditure also included furniture, travel, training, institutional provisions and consumables.

"In this regard, I propose to reduce all ministries' original 2005 budget allocations," he said.

The most affected ministries were finance, home affairs, health and child welfare, defense and education.

Murerwa said this would reduce the budget deficit, projected at 8.7 percent of Gross Domestic Product in the current fiscal year.

A higher budget deficit would rapidly fuel money supply growth, impacting negatively on the country's inflation targets, he said.

The current inflation rate stands at 164.3 percent up from 127 percent in March this year.

Inflation peaked at 622.8 percent in January 2004 before progressively declining in the year due to tight monetary and fiscal measures.

The minister announced new taxes on privately-owned commuter buses, mobile phone airtime and an increase in Value Added Tax (VAT) from 15% to 17.5%.

"VAT is currently levied at a standard rate of 15%. In order to raise more funds, I therefore, propose to review the rate of VAT from 15% to 17.5% with effect from September 2005," Murerwa said.

"This measure is estimated to yield additional revenue of about Z$320 billion."

Taxes on imported second hand cars and luxury goods have also gone up, and to help raise scarce foreign currency, Murerwa announced tax payments in hard currency by workers paid in forex, and for mining concessions.

Employment in the public sector is frozen, to cut expenditure, a move widely believed as intended to appease South Africa, from which Zimbabwe is expecting a financial bailout.

Murerwa said government spending would now be strictly focused on vital projects, such as food imports and irrigation development, while projects yet to take off, are suspended.

Murerwa said in spite of the expenditure cuts, the government would still borrow some Z$1.6 trillion from the domestic capital market, at high interest rates.

But he said government was determined to tame inflation, which he described as the country's number one enemy.

"While the budget re-allocations to accommodate inescapable expenditure may not be welcome, we have to take a firm stance in our fight against inflation," he stressed.
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