Biti rules out budget deficit

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Finance Minister Tendai Biti is firm that Zimbabwe will not tumble into a cash budget deficit this year even as a greater proportion of donor pledges are still outstanding mid-way through the year.
The treasury reported that in the first quarter of the year, the country receipted $3 million in budgetary support from donors, about 0,4% of the annual size of the vote of credit purse.
The fiscal authorities expected donors to write a cheque of $810 million in support of its 2010 national budget valued at $2,250 billion, with the rest of the finances coming from direct and indirect taxes and other conventional sources of revenue.
After its visit to Zimbabwe to review the country’s economic progress and assist in the preparation of the mid-year budget statement early this month, the International Monetary Fund (IMF) concluded that a budget deficit this year may be inescapable given this fiscal outturn.
“Owing to the uncertainty with respect to revenues and grants in 2010, it would be essential to prepare contingency plans,” Vitaliy Kramarenko, mission chief, said in statement at the end of his visit on June 9.
The multilateral finance institution urged the government to target a cash fiscal deficit of not more than $150 million, about 2,6% of this year’s projected gross domestic product (GDP).
Biti, however, thinks a deficit will not happen at all given the country’s above-target revenue performance so far.
“We don’t have control over the $810 million. So what the IMF is saying is that we will be short by about $150 million because the money is uncertain. They arrived at the $150 million after they factored in the fact that revenue has increased by about $200 million to $1,6 billion. I am confident that what we are generating on our own will be enough to cover whatever would remain outstanding from donors. So we can’t have a cash budget deficit.”
The 2010 national budget was based on a revenue projection of $1,4 billion and expenditures amounting to $2 250 billion with donors providing the balance equivalent to 36% of the bill.
But in the period February to May this year, the Zimbabwe Revenue Authority (Zimra) surpassed its revenue target, reducing the probability of a fiscal deficit.
However, the IMF technical team has cautioned Zimbabwe’s fiscal authorities against reviewing revenue forecasts upward saying the economy’s “robust growth” in 2009 and early this year was “slowing down” with a notable worsening of “financial vulnerabilities”.
“While monthly revenues increased above expectations during February-May 2010 in part due to commendable revenue administration efforts, they remain volatile and highly dependent on the strength of the recovery, which remains uncertain,” Kramarenko also said.
The IMF has subsequently downgraded Zimbabwe’s growth outlook from 7% initially forecast by the country’s economic planners to just 2,2%.
Inflation, on the upside since April last year, is also seen closing the year above 5%, increasing the fiscal vulnerabilities of the economy.
The CSO published figures showing the annual rate of increase in the price level quickened to 6,1% in May compared to the same month last year.
In the short-term, wage pressures are also seen stoking an unsustainable growth in domestic demand blamed for igniting inflation, further undercutting the budget.