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Minister Patrick Chinamasa

Prosper Ndlovu, Business Editor
ZIMBABWE’S economy is projected to grow by 1,2 percent against the targeted 2,7 percent at the close of 2016 on the back of “strong headwinds” that continue to weigh down on progress, Finance and Economic Development Minister Patrick Chinamasa has said.

The Government had proposed a national budget of $4 billion for 2016, premised on anticipated revenues of $3.85 billion, and a projected domestic financing gap of $150 million.

In his mid-term fiscal policy review statement yesterday, Minister Chinamasa said the first half of 2016 has been a rough patch for Zimbabwe and pointing out numerous constraints that hindered growth.

The minister cited depressed international commodity prices, particularly for minerals, limited domestic and foreign direct investment, “also associated with our debt overhang”, the growing fiscal deficit, which impacts on the liquidity of the financial system, as well as on business activity and the resultant overall fall in incomes and weakening of domestic aggregate demand as major barriers.

“The economy is facing strong headwinds, with major challenges being experienced in the economy and business activity during the first half of the year than what the 2016 National Budget anticipated.

“This primarily reflects downside risks associated with: The impact of the drought on our agriculture, with attendant supply challenges along the agro-processing linkage value chain,” said Minister Chinamasa.

“The above challenges are undermining performance of our key productive sectors, inclusive of agriculture, mining, manufacturing, tourism, construction and services.

“As a result, the real economic growth rate, which was targeted for the 2016 national budget at 2.7 percent, is now projected much lower at 1.2 percent.”

The minister said deflationary conditions for both food and non-food categories persisted during the first half of 2016 with annual headline inflation remaining negative, “albeit accelerating from -2.19 percent in January 2016 to -1.4 percent in June 2016”.

The minister attributed the continued decline in prices in 2016 to both food and non-food inflation, underpinned by the sustained depreciation of the South African rand, subdued international oil prices; and waning domestic demand.

On the outlook, Minister Chinamasa said inflation was expected to remain broadly subdued, sustained by a weak South African rand against the US dollar and low international crude oil prices.

“Annual average inflation for the year is projected to be -0.4 percent, up from -2.4 percent recorded in 2015,” he said.

Of the total budget, he said that recurrent expenditures were estimated at $3.685 billion while $315 million was approved for development programmes.

Minister Chinamasa said while revenue performance of $1.692 billion was realised during the first half of the year — though subdued by the declining momentum in economic activity — reflected positive gains during the second quarter of 2016.

He said during the period January to June 2016, revenue under-performance against over-expenditures resulted in a cumulative budget deficit of about $623.2 million, far above the full-year target of $150 million.

The minister said failure to contain the budget deficit in the shortest possible time will worsen the deficit to an estimated year-end level of over $1 billion.

As such, he said, financing of the budget deficit has been primarily through issuance of treasury bills by the Reserve Bank on behalf of the Government.