Zimbabwe rebudgets to cope with continuing hyperinflation
An additional Z$372,2 trillion was budgeted to finance Government expendi-ture until year-end.
Presenting his Mid-Term Fiscal Policy Statement to Parliament yesterday, Finance Minister Dr Herbert Murerwa said the new tax-free income threshold comes into effect on September 1, releasing Z$35 trillion to tax-payers.
The move should enhance the purchasing power of the majority of taxpayers hit hard by inflation.
Workers had continued to bear the brunt of rampant price increases against rapidly dwindling disposable in-comes.
However, income above Z$20 million will be taxed at a rate of 35 percent.
Dr Murerwa said the Z$372,2 trillion supplementary budget was unavoidable given rising operational costs that line ministries and other Government departments were facing against a high-inflationary environment.
He said additional funding requirements were also necessary under the National Economic Development Priority Programme (NEDPP).
Initially, Z$123,9 trillion had been budgeted for this year.
Requests for additional funds from the various arms of Government stood at Z$614 trillion, a figure Dr Murerwa said was not feasible, particularly against ad-ditional revenue projects of only Z$140 trillion.
Domestic funding for projects under NEDPP would require at least Z$136 trillion.
“. . . resources initially allocated are no longer suffi-cient to enable the Government machinery to function up to the end of the year, making it necessary that I re-visit the 2006 budget estimates.
“To this effect, I have had to critically analyse the re-quests and ensure that provision is made only for those expenditures that were critical,” said Dr Murerwa.
Of the additional funds, Z$82 trillion would be gobbled up by salaries and wages while Z$44,5 trillion would go to-wards the maintenance of line ministries to ensure con-tinued delivery of public services.
NEDPP would receive Z$28,6 trillion.
Projects which included support for agriculture and distressed companies had already been identified and were ready for funding.
Other commitments to receive funding included the upgrading of the Harare, Victoria Falls and the Joshua Mqabuko Nkomo airports (Z$1,3 trillion), the construction of toll gates on highways (Z$1,2 trillion) and the dualisa-tion of the Harare-Masvingo and Harare-Gweru roads (Z$7,6 trillion).
Operation Garikai/Hlalani Kuhle would be allocated Z$500 billion.
In the last six months, a total of Z$762,8 billion had been disbursed towards the completion of 2 043 units.
Dr Murerwa said inflation had wreaked havoc on the economy in the first six months of the year and revers-ing the trend was central to addressing the challenges besetting the economy.
“Mr Speaker Sir, I would like to reaffirm Government’s commitment to firmly deal with inflation. Specific measures to reverse inflation require not only complementary fiscal and monetary policies, but also generating domestic production and supply response, as well as dealing with all the resources and parameters that allow scope for indiscipline and speculative and rent-seeking business practices.”
The minister also spoke strongly against growing cor-ruption in the country, which he said was largely driven by greed and indiscipline in both the public and private sectors.
Indiscipline was characterised by smuggling of gold and under-declaration of output in the mining sector, under-invoicing of exports, over-invoicing of imports, side-marketing of produce and disruption of production in the agricultural sector, among other elements.
On sectoral performance, the minister said on the backdrop of the good rainy season in the last agricultural period, he expected agriculture to grow by 23 percent this year while the manufacturing and mining sectors would register a decline this year.
Maize production improved from last year’s 750 000 tonnes to an estimated 1,7 million tonnes while cotton also registered a strong 62 percent growth with sorghum production rising by 180 percent.
Following efforts by the Government to support winter wheat crop, output was also expected to increase to about 220 000 tonnes from last year’s 135 000 tonnes.
Notwithstanding positive growth patterns of other crops, tobacco, however, did not perform to expectations with only 50 million kilogrammes realised down on last year’s 74 million and the minister said efforts to improve the preparations for the next season were underway.
Dr Murerwa said although Government had been supporting agriculture financially, the heavy reliance on the fiscus for funding of agriculture was unsustainable and, therefore, called on the private sector and financial institutions to play a pivotal role in the financing of agriculture.
“Commercial banks had highlighted constraints limiting their capacity to play their traditional role in availing resources to the agricultural sector.
“In this regard, the Reserve Bank has taken measures to reduce the level of banks’ statutory reserves and in return banks have been making commitments to increase their support to agriculture,” said Dr Murerwa.
Notwithstanding the challenges arising out of declining disposable incomes and low industrial capacity utilisation, positive performance was registered in revenue collection.
For the first six months of the year, cumulative revenue collections stood at Z$76 trillion against a target of Z$58,2 trillion with value added tax being the major contributor at 26,8 percent, Pay As You Earn(PAYE) at 22 percent.
However, on the expenditure side the variance was negative as over Z$90 trillion was spent against an original target of Z$74,3 trillion with expenditure pressures emanating from high inflation resulting in frequent review of prices, and requirements for programmes under NEDPP.
Recurrent expenditure caused the negative variance with civil servants’ salaries resulting in Z$35 trillion being spent instead of the initial target of Z$21 trillion, while capital expenditure remained within the budget.
The Z$17,8 trillion budget deficit in the first half of the year was financed entirely from the domestic market using Treasury Bills, a development that led to the ballooning of Government’s domestic debt to Z$46 trillion by last month from Z$15 trillion in December last year.
Dr Murerwa said in this environment of high inflation, the market was not willing to commit itself to long-term paper, thus, making it difficult to restructure public domestic debt in line with the desired 70 percent long and 30 percent short debt profile.
Coming on the thorny issue of parastatals which have been draining the fiscus heavily, the minister said Government remained committed to the successful resuscitation of ailing State enterprises, with previous efforts now bearing fruit for some enterprises evidenced by such entities as Zupco, Agribank and Forestry Company declaring dividends to Government.
“Urgent measures are being instituted to deal with the chronic quadrangular inter-parastatal debt problem while Zesa Holdings’ financial constraints partly attributable to sub-economic tariffs are being ad-dressed through regular review of their tar-iffs”
The Ziscosteel management contract issue was also highlighted with the minister promising that Government would soon conclude the deal which would result in the steel firm being able to acquire offshore loans for improving capacity utilisation and operational performance.
Dr Murerwa remained optimistic that the challenges besetting the economy would be dealt with decisively, particularly in the second half of the year. ‘ The Herald.