The economic growth rate for 2016 has been revised downwards to 1.2% from the initial target of 2.7% largely because of the impact of the Elnino induced drought on the agricultural sector.
Finance Minister Patrick Chinamasa in his 2016 Mid-Year Fiscal policy review said the economy is facing strong headwinds emanating from persistent liquidity challenges.
According to Chinamasa, various challenges are undermining performance of key productive sectors, inclusive of agriculture, mining, manufacturing, tourism, construction and services.
These include the impact of the drought on agriculture, with attendant supply challenges along the agro-processing linkage value chain, depressed international commodity prices, limited domestic and foreign direct investment also associated with the country’s debt overhang and the growing fiscal deficit.
Initially the 2016 National Budget was proposed at $4 billion for 2016, premised on anticipated revenues of $3.85 billion, and a projected domestic financing gap of $150 million and of the total Budget, recurrent expenditures were estimated at $3.685 billion, whilst $315 million was approved for development programmes.
In the outlook, revenue is projected at under US$3.7 billion by year end. This represents a decline from the initial projection of US$3.85 billion. Total expenditures during the six months to June 2016 were US$2.316 billion, against a target of US$2.007 billion, giving over-expenditures of US$308.4 million. Total revenue was $1.69 billion but Chinamasa said though subdued by the declining momentum in economic activity this year, reflected positive gains during the second quarter of 2016.
He said the second quarter revenue improvement has been sustained through implementation of a number of measures geared at strengthening tax and customs administration, and the plugging of leakages.
These include the Ease of Doing Business reforms and efforts being made by ZIMRA and other Government Agencies in plugging revenue leakages, which also contributed to collections rising by 9.4% during the second quarter of 2016
Employment costs were US$1.638 billion for January to June inclusive of outstanding 2015 13th Cheque payments of US$162.1 million, as well as financial savings realized from the implementation of some of the Wage bill rationalization measures already approved by Cabinet.
In terms of the policy review thrust, Chinamasa said notwithstanding the prevailing depressed economic activity, Government remains focused on ensuring that the ZimAsset programmes and targets remain on track, with relentless efforts being directed at stimulating production in all key sectors of the economy.
He said urgent priorities under the 2016 Mid-Year Policy Review relate to poverty reduction, stepping up efforts on stimulating productive sectors and improving the investment/ease of doing business environment.
Advancing the re-engagement process in order to fully normalise relations with the international financial community that will eventually open access to new financing also remain an urgent matter.
He said the multi-currency arrangement remains central to the policy thrust as already enunciated in the Zim Asset , thus allayed fears and concerns of reintroduction of the Zimbabwe dollar through ‘the back door’.
Chinamasa said government will institute various measures aimed at stimulating key economic sectors such as agriculture, mining and manufacturing.
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He said government was seeking to consolidate support to local industry, improve efficiency in tax administration and promote the Ease of Doing Business through reduction in transactions costs.
Chinamasa said to stimulate manufacturing industry, government will continue to provide support to the manufacturing sector, through reduction of Customs Duty on inputs, and modest protection on competing imported products, in order to enhance the competitiveness of locally produced products.
Some of the key measures announce in the budget include:
- The exemption from export tax, the sale of raw hides accumulated during the period January to July 2016, inorder to minimise loss of valuable excess raw hides in the hide sector. The relief granted shall not exceed the prescribed quantities for each individual exporter.
- To enhance competitiveness of the shoe manufacturing sub-sector, Government will extend a Rebate of Duty to approved shoe manufacturers, to accommodate essential inputs such as chemicals, rubber and latex, among others.
- In the cold manufacturing industry, government will increase Customs Duty on Metal Cladded Insulated Panels from 25% + Surtax, to 60%+ Surtax.
- In order to level the playing field between imported and locally produced cement, Chinamasa said government will review Customs Duty on cement imported from the region and beyond from 25% and Surtax of 25%, to US$100 per metric ton, with effect from 1 October 2016.
- To promote the growth of mobile and electronic money platforms government will suspend Duty on Point of Sale Machines.
- Government in order to encourage prospecting activities in the mining sector, as well as reducing the cost of doing business, proposed a further downward review of mining fees and charges, in consultation with the Ministry of Mines and Mining Development.
On advancing the implementation of the country’s Arrears Clearance strategy, Chinamasa said the road map remains on track, following the successful implementation of the Staff Monitored Programme (SMP) with the IMF, which ended in December 2015.The targeted external payment arrears under the arrangement comprise of, firstly the US$601 million arrears to the AfDB, US$110 million with the IMF, and US$1.1 billion with the World Bank.
“It is, therefore, critical that we complete the remaining steps on Arrears Clearance in order to unlock resources from the IFIs and bilateral cooperating partners,” he said.