Mid-term policy review points to negative growth, analysts

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THE country’s economy is likely to slide into negative growth triggered by the underperformance of the mining sector, lack of investment and fiscal indiscipline, analysts said on Friday.
Presenting the mid-term fiscal policy before Parliament on Thursday, Finance and Economic Development Minister Patrick Chinamasa maintained the revised growth projection for the country at 3.1 percent from an initial projection of 6,1 percent after the extractive industry underperformed in the first half of the year.
The mining sector, now the main driver of the economy accounting for over 60 percent of foreign currency generated is seen registering a negative 1,9 percent growth – after an initial growth projection of 10,7 percent for the year – due to weakening commodity prices.
Economic analyst John Robertson said the 3,1 percent growth projection now looks even more unrealistic given the official figures put out by Chinamasa on Thursday. Robertson said he expects a negative growth rate of between one and two percent, citing fiscal indiscipline.
“Chances of the country meeting that 3.1 percent target are highly unlikely. The economy’s performance is itself quite telling,” Robertson told The Source.
“The economy is actually retarding, by year end we are most likely to see a negative growth of between 1 and 2 percent.”
Robertson said government’s proposal to increase excise duty on mobile phone credit, fuel and mobile phone handsets would not be effective in increasing its revenue base.
“Such increases only mean that they would lose out on VAT as the generality of people will have less disposable income to spare. Instead, government should be focusing on reducing its expenditure,” he said.
He said government should also consider restructuring the public sector to make it more economic and effective.
Government expenditure in the first half stood at $1.953 billion, exceeding the $1.848 billion target.
The wage bill shot up to $1.486 billion, representing 76.1 percent of total expenditure.
Zimbabwe National Chamber of Commerce chief economist Kipson Gundani said the economy would need external capital injection to meet the 3.1 percent growth target.
“The economy is not going to grow under these conditions. There is need for meaningful external inducement in terms of serious money,” he said.Advertisement

Gundani said government’s decision to raise taxes would only stifle the local industry badly in need of fresh capital to retool and become competitive.
“Government should be taking long-term measures which will stimulate the local industry. Increasing taxes is not one such measure. When tax is high, the temptation to evade tax will also be high,” Gundani said.
The analysts, however, welcomed the finance minister’s calls to harmonise investment laws to unlock foreign direct investment inflows, which the central bank said fell 59 percent to $67 million as at June this year, from $165 million in the prior comparative period.
Chinamasa said the empowerment policy, which compels foreign businesses to sell 51 percent to locals, will be implemented on a sector by sector basis, allaying market fears that it would be a one-size fits all approach.
Central bank governor John Mangudya felt that the fiscal policy statement complemented his monetary policy thrust.
“It’s very positive as far as we are concerned because it is buttressing the economic development efforts we are trying to achieve in this country,” he said.
Mangudya said proposed measures to lower royalties on gold from primary producers to five percent from seven percent would boost output in the capital intensive sector.
“As usual, they (tax measures) are necessary to increase government revenue. I know taxation is never anything that people want but it’s necessary to ensure that the government can balance books so we should take it in a positive line,” he said.