By Africa Moyo
Finance and Economic Development Minister Professor Mthuli Ncube yesterday said the economy will grow by 6,3 percent this year as signs of recovery continue to show, albeit at a slow pace.
Prof Ncube said this yesterday in Harare while announcing far-reaching fiscal measures to reverse fiscal disequilibrium in the economy.
The 2017 National Budget had primed the economy to grow by between 4,5 percent and 4,8 percent.
“The economy is showing signs of recovery albeit with a number of challenges and risks. Indications are that the economy will grow by 6,3 percent against the original Budget projection of 4,5 percent and 4,8 percent estimated for 2017.
“With this projected growth, Zimbabwe will join the ‘6 percent club’ of African countries growing at more than 6 percent per year,” said Prof Ncube:
The economy is expected to grow, underpinned by “better-than-anticipated performance” across the key sectors of the economy chiefly agriculture, mining, tourism and manufacturing during the first half of the year.
In agriculture, tobacco stunned hitherto critics of the land reform programme after shredding initial projections to record a staggering 250 million kg this year, the highest tobacco output ever produced in the country even during the time of white former commercial farmers.
The tobacco output, which raked in $730,7 million this marketing season, compensated for the expected lower maize output due to poor rainfall patterns at the beginning of the rainy season.
In the first half of this year, the country also recorded significant growth in respect of gold, platinum, chrome and coal, among other key minerals, setting the stage for a rise in economic growth.
Gold miners have been on the rampage this year, hauling 21 tonnes in seven months to July 31, tearing all records set since 2009, driven by the exploits of small-scale miners who delivered 13,5 tonnes.
Large-scale miners delivered 7,3 tonnes up to end of July.
The gold output as at July 31, was 4 tonnes shy of last year’s total deliveries of 24,8 tonnes.
This year’s target is 30 tonnes.
However, Prof Ncube said the quality of the growth, which is anchored on agriculture and mining, is “obviously not inclusive”.
He said the growth trajectory faces risks and challenges related to foreign currency and cash shortages; unsustainably high budget and current account deficits; emerging inflation pressures; slow moving re-engagement process; infrastructure deficiencies; and weak social service delivery.
“These challenges are, however, not insurmountable. These challenges call for urgent reforms. It cannot be business as usual.
“Bold decisions need to be taken on the reforms front in order to stimulate growth and sustainable development,” said Prof Ncube.
The major challenge is the high budget deficit, which has had destabilising implications not only to the financial sector but to the rest of the economy.
Prof Ncube said the financing of the deficit was mainly through domestic borrowing, with the use of instruments such as Treasury bills, overdraft with the Central Bank, cash advances from Central Bank, arrears and loans from the private sector.
“Such financing mechanisms are crowding out the private sector, hence constraining production. This also increased money supply in the economy translating into exchange rate misalignment and inflationary pressures now at 4,9 percent, as of August.
“Similarly, the high deficit has ignited expansion of domestic debt from $275,8 million in 2012 to current levels of $9,5 billion against $7,4 billion external debt.
“This brings total public debt to $16,9 billion,” said Prof Ncube.
Going forward, Prof Ncube said macro-economic and fiscal stabilisation becomes critical and urgent, and should invariably target the fiscal deficit.
He said a stable macro-economic environment is an essential precondition for growth and improvement of living standards for citizens.
President Mnangagwa is on record stating that his Government was working flat out to ensure the country achieves middle economy status by 2030 where the active population has “decent jobs” and per capita income of $3 500.
This has seen Prof Ncube crafting a number of fiscal measures and fiscal roadmap to ensure the achievement further economic growth.
Some of the measures include limiting the use of the RBZ overdraft facility and curtail RBZ advances to Government in line with Section 11(1) of the Reserve Bank Act [Chapter 22:15].
The Act states that borrowing from the RBZ shall not exceed 20 percent of the previous year’s Government revenues at any given point.
As at August 31, the overdraft with the RBZ was $2,3 billion, well above the statutory limit of $762,8 million.
Government, in its management of domestic borrowing, is also reviewing the use of Treasury bills in support of socio-economic development programmes.
To date, Treasury Bill issuances have spiked from $2,1 billion in 2016 to a cumulative $7,6 billion by end of August.
In 2014, Treasury Bills to GDP ratio was at 4,4 percent and has increased sharply to 36,5 percent by end of August, which is a cost to Government.
Excessive issuance of short-term debt instruments at high interest rate also crowds out the private sector and compounds the increase in Government recurrent expenditure.
Treasury will seek to finance Government’s vital socioeconomic development programmes by use of instruments that “crowd in” the private sector, including public private partnerships or Government guarantees to financial institutions.
Such guarantees will only be a contingent liability to Government, unlike Treasury Bills that have a direct and immediate cash flow implication.
Other measures include the issuance of publicly traded infrastructure bonds; accelerated privatisation of State Owned Enterprises and Parastatals, external debt arrears resolution; creating a world-class “regional fuel dry port” out of the Mabvuku Loading Gantry and Msasa Depot fuel storage facilities; and enhancing revenue collection measures.The Herald