Posted on 11/21/2003 3:39:19 AM PST by Clive
The extent of Zimbabwe's economic collapse became even more apparent yesterday, with government budget forecasts showing that the country's output will have almost halved in real terms by the end of next year from its peak five years ago.
Herbert Murerwa, finance minister, said gross domestic product would fall 13.2 per cent in 2003, nearly double his prediction a year ago of a 7.2 per cent reduction, and forecast a further 8.5 per cent decline in 2004.
This would take to 48 per cent the cumulative fall in output since the crisis started in 1998, precipitated by the government's plans for taking over commercial farmland.
Mr Murerwa also conceded that inflation would reach 600 per cent by next month, compared with his prediction of 96 per cent a year ago. He expected inflation to move above 700 per cent in the first quarter of 2004 before slowing.
Yesterday's annual budget presentation coincided with the first day of a planned general strike, which met little response. The strike was called to demand the release of labour and civil leaders arrested on Tuesday in protests against President Robert Mugabe's authoritarian regime. State-owned media failed to report the strike plan, however.
Mr Murerwa presented a largely standstill budget, extending temporary tax relief to the lowest paid and promising tighter fiscal and monetary policies to tackle inflation next year.
As expected, he raised the threshold for income tax from Z$180,000 a year ($220 at the current official exchange rate) to Z$2.4m ($2,900). The top 45 per cent tax rate which used to cut in at incomes of Z$1.5m will now take effect from Z$4.5m.
In the shortest budget address since independence in 1980, Mr Murerwa gave sparse information about the state of the economy. He made no mention of the performance of the main sectors, nor of the balance of payments, although he did promise to launch an industrial development strategy, without giving details.
Government spending in 2004 was set to rise six-fold to Z$8,740bn and revenues to increase by a similar margin to Z$6,900bn. But because monetary gross domestic product was also expected to rise six-fold to Z$24,600bn, the budget deficit of Z$1,850bn was projected to stay at its 2003 level of 7.5 per cent of GDP.
Most of the tax adjustments were essentially minor, reflecting inflation indexation rather than any policy shift. But value-added tax, which has been promised for years, is to be introduced on January 1, at 15 per cent - the same rate as existing general sales tax.
Mr Murerwa also imposed a 5.5 per cent duty on diesel and petrol to meet the debt-servicing costs of the state-owned National Oil Company.
The main surprise of the speech was the absence of any reference to exchange rate policy. Mr Murerwa had been expected to devalue the so-called export support rate to boost exports.
However, he promised a monetary policy statement by Gideon Gono, the recently appointed central bank governor, which businessmen hoped would include effective devaluation of the Zimbabwe dollar.
The official exchange rate is Z800.00 to US$1.00 but the actual exchange rate has to be found on the curb, where it is over Z6,000.00 to US$1.00
This country is fast reverting to a stone-age hunter-gatherer and barter economy.
Yes, you have stated that Zimbabwe will be a case study for destruction of an economy.
The employers are hard put to find a way to renumerate their workers, as money has no value.
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