THE 2010 MID-YEAR FISCAL POLICY REVIEW

Posted on 14/07/2010

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HARARE – Government revenue was forecast at $1.75 bln this year from the $1.44 bln projected last year at the Budget, but the non-performance of the vote of credit (donor funds) would see the total out turn maintained at $2.25 bln with revenue matching expenditure, Finance Minister Tendai Biti announced in the Mid-Term Fiscal Review.

“There will be no supplementary budget, but a realignment of budgets due to non-performance of the vote of credit.” Spending would be realigned to social services, he said.

Full report found here

Revenue collections had amounted to around $143 mln a month against the original budget of $120 mln. The vote of credit of $810 mln budgeted for in December had only seen $207 mln made available as of June 30, with the bulk going to health and education. The vote of credit was now forecast at $500 mln.

Revenue in the first 6 months amounted to $930.7 mln, with 37.6% coming from VAT, 8.2% from excise, 14.3% from customs revenues, 5.1% from non-taxable sources (presumably donor), PAYE 18.1%, and corporate tax 10.8%.

As a result of the expected increase in collections, revenue in 2010 would now amount to 31.7% of GDP compared with 26% when the forecast was first made in the Budget and 18.6% in 2009. At 31.7%, this would place Zimbabwe only 2nd to SA in the region when it came to this ratio.

Expenditure in the first 6 months amounted to $813.4 mln, with $725 mln (or 82%) going to recurrent expenditure and the balance went to capital projects. At $493.2 mln, wages made up 62% of expenditure. Regional levels were around 30%, he noted.
 

Biti said the government wage bill continued to rise as 19 800 people were added to civil service in the past few months, with 15 197 or 79% being teachers. The average wage bill rose from $45 mln to $49 mln after the increment in March, but was now around $55 mln a month.

As for capital expenditure, he said Hwange Power Station had received $10 mln, $33.4 mln had been spent on transport and dualisation, $5 mln was given to the NRZ, $18.1 mln was spent on upgrading airports, $20.2 mln was allocated to the strategic grain reserve and $10 mln to housing.

Biti re-affirmed that the multi-currency regime would prevail until 2012, but government would be compiling “various submissions on the appropriate currency regime, and will produce a ‘white paper’ that will facilitate public debate at an opportune time”. As a result of the shortage of small denomination change, government would import coins in H2.

The trade deficit in the first 4 months amounted to $675 mln as imports of $1.554 bln outstripped exports of $870 mln. He noted that exports in the whole of last year amounted to $1.2 bln

Biti noted that mining exports in the first 6 months amounted to $650 mln, but tax revenues from the sector were a mere $50 mln. Platinum exports amounted to $299.8 mln, ferrochrome $133 mln, and gold $118.9 mln.

Inward investment flows amounted to $105 mln in the first 6 months of the year compared with $852 mln in 2009.

Biti said the GDP growth forecast had been revised down to 5.4% from 7% due to downgrades in manufacturing, mining and tourism. Inflation in December was forecast to be running at 4.5% year on year.

Mining would now grow 31% from 40% previously (government currently had 4.4 mln carats of diamonds stockpiled), manufacturing was forecast to grow by 4.5% from 10% previously, and tourism by 3.5% from 10%.

Agriculture should grow by 18.8% compared with the forecast of 10% previously, largely as a result of higher tobacco production, now forecast at 113 mln kg from 77 mln at the beginning of the season.

Maize output rose 3% to 1.33 mln tonnes, while beef production rose 2% to 95 000 beasts. Of the $227.4 mln spent on agriculture, $141 mln came from government resources, $74 mln from partners and $25 mln from the EU.

Construction should grow by 1.5%, transport and communication by 3% and public administration 2%, while electricity, gas and water production was forecast to shrink 1.8%.

Biti said there was a need to take growth “back to the 2009 trajectory”. Inflation running at 6.1% year on year in May was “quite unacceptable” and had “less to do with supply and demand and rather old habits that refused to be liquidated”.

Tourism arrivals grew 0.7% to 319 788 in the 3 months to March 31. He called on Zimra to look into Visa payments that were not repatriated to Zimbabwe.

Biti warned the banking sector that if it did not narrow interest rate spreads, government would take “corrective measures through the necessary Statutory Instruments”.

He also proposed lower duties on clothing and footwear (see Pg 179 of presentation), reformed excise duties on alcohol to $2 a litre for spirits and 50% for wines, and banned the export of scrap metal

Also announced the fine for smuggling would be increased to $5 000 from $400

Revenue enhancements include:

  • The royalty rate on precious metals being increased to 4% from 3.5% from October 1
  • An export tax of 15% on raw chrome
  • Selected basics would no longer be exempt to encourage local industry. These include margarine, washing powder, petroleum jelly, beauty products
  • FCAs will no longer be exempt from tax

The basic tax threshold level was increased to $175 from $160 and he offered a tax amnesty to those companies who “wished to normalise their tax obligations for the period prior to 31 December 2008”.

Biti concluded at 5:15pm, having started at 2:46pm.

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Posted in: Business, Politics, Zim