FINANCE minister Tendai Biti on Wednesday cut public spending and raised taxes in his mid-year fiscal review.
He said the country had to “act and save ourselves [or] we do nothing and drown”.
Announcing that the government had reduced its 2012 growth forecast from the 9.4 per cent predicted at the end of last year to 5.6 per cent, Biti said he had been forced to cut spending in 2012 by 15 per cent to $3.4bn while increasing indirect taxes on some imports, especially food, and on fuel.
“The first half of the year has been the most economically challenging in the last 40 months,” he added.
Fuel duties have been increased 25 per cent but Biti said he did not expect this to lead to higher prices at the pump because of the recent decline in world oil prices.
He described the first half of 2012 as “a sad balance sheet of unmet targets and policy slippages”.
Biti warned that government finances were “continuing to deteriorate” mostly because the state was not getting its share of revenue from Marange diamond fields.
Revenue was $244m (13 per cent) below target in the first half of 2012, primarily because of a $229m shortfall in diamond revenue.
Because Zimbabwe operates a cash budget system, spending was cut by a similar amount – $246m – despite overruns in both employment costs and foreign travel expenses.
The finance minister said capital spending was 53 per cent below target while non-wage recurrent expenditure fell 48 per cent short of budget.
But the government wage bill at $965m was 8 per cent above budget mainly because of the employment of an extra 9,800 people, more than half of them by the army.
“The current situation where 73 per cent of our expenditure is on wages for 235,000 people with 27 per cent going to the rest of the economy or 13.7m people is not sustainable.”
To overcome the leakage in diamond revenues, Biti said the government would ensure that the state-owned Zimbabwe Mining Development Corporation or “any other future government diamonds agency” had a 50 per cent shareholding in diamond companies, including the Chinese-owned Anjin diamonds, which was the second-largest exporter of Zimbabwe diamonds worth $123m in the first half of 2012.
Diamonds have overtaken gold and tobacco to become Zimbabwe’s second-largest export, after platinum, increasing 370 per cent to $363m in the first half of 2012 or 20 per cent of the total.
Biti revealed that diamond output was forecast to increase 38 per cent this year to 12m carats.
Despite strong export growth of 45 per cent, he warned Zimbabwe would have a trade deficit in the region of $3bn this year with imports of $8.2bn and exports of around $5.2bn.
He bemoaned the country’s failure to attract foreign direct investment.
“This economy needs foreign direct investment to increase this little cake into a bigger cake that will generate jobs,” he said.
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