Zimbabwe says to slash budget deficit despite looming elections

HARARE (Capital Markets in Africa) – Zimbabwe plans to cut its budget deficit by half next year to 4 percent of GDP, the national Treasury said, an ambitious goal at a time when the country is expected to hold a presidential vote that veteran President Robert Mugabe is set to contest.

The southern African country has over the last four years failed to cut its deficit despite promises to do so, mainly due to high government spending on public sector salaries, which accounted for more than 90 percent of the 2016 budget.

In an election year Mugabe’s government is unlikely to reduce spending, economic analysts said, making it difficult to cut the deficit to 4 percent of gross domestic product. This year the government targets a deficit of 8.4 percent fo GDP.

Zimbabwe, which dumped its hyperinflation-hit currency for the U.S. dollar in 2009, is now running short of dollars as well as quasi-currency “bond note” introduced last year to ease cash shortages.

A Treasury document seen by Reuters on Tuesday said the Treasury “will focus on containment of the budget deficit as one of the key fiscal anchors”.

“In the absence of strong measures targeted at containing expenditures and enhancing revenues, further deterioration of the budget deficit is likely to be sustained beyond 2018,” it said.

The government expects improved tax collection next year to increase revenue while reducing the share of public sector salaries to 80 percent of the budget, from 85 percent this year.

Scepticism
But analysts were sceptical, saying the government would likely buckle to pressure to spend in order to gain votes during next year’s presidential and parliamentary elections.

“This government has a track record of spending beyond its means and in an election year we will see a much, much bigger deficit,” said Harare-based economist John Robertson.

Zimbabwe does not receive funding from foreign lenders such as the International Monetary Fund and World Bank because it is in arrears, and so relies on domestic taxes and borrowing from local banks to fund the national budget.

The country’s foreign and domestic debt will increase to $14 billion in 2018 from $13 billion this year, the Treasury said.

Analysts said government borrowing was pushing up money supply and ultimately inflation, which rose to 0.78 percent year-on-year in September, its fastest rise since 2009.

Most independent economic analysts, however, say annual inflation has already hit double digit figures following an increase in prices, especially of imported goods.

Zimbabwe is struggling to pay for imports due to the dollar crunch, which has also caused acute cash shortages. On Tuesday the agriculture minister said Harare would ban the importation of fruit and vegetables to preserve scarce dollars.

Source: Reuters Africa News