Zimbabwe tumbles into budget deficit as donors default

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Finance Minister Tendai Biti yesterday said Zimbabwe would incur a budget deficit of about 11% this year — the first under ‘dollarisation” — after donors defaulted in their pledges and a growing civil service wage bill forced the country into significant cost overruns in the first half of the year.
But instead of running a supplementary budget, the country’s fiscal authorities announced they would make drastic reallocations within the lean envelop in the second half of the fiscal year.
“Government cannot fulfill some of its undertakings,” Biti said in his mid-term fiscal policy review in parliament yesterday.
Public investment projects, where the bulk of the vote of credit had been allocated under the initial budget presented in November last year, has been affected the most.
Donors had pledged $810 million in support of the country’s 2010 national Budget, which was based on a revenue target of $1,4 billion against total expenditures of $2,2 billion for the year.
Attaching those who preferred non-budgetary support and calling their contributions “dead aid”, Biti said only United Nations agencies and a few bilateral cooperating partners actually opened their cheque books and total receipts were only $207 million.
Biti said the monthly civil service wage bill grew to $55,1 million by June from about $50 million in January after a wave of restive collective bargaining by all civil service bodies in February, and as hiring increased.
The size of the civil service grew by about 19 170 with the education sector accounting for about 79% or 15 197 of the recruitments as a number of teachers who had quit the profession at the peak of the country’s downturn returned without conditions.
Although revenue increased by more than expected, Treasury doesn’t expect it to match the gap left by donors.
Revenue breached the monthly target of $120 million to about $140 million, inducing an upward review in the annual target to $1,7 million, after a surge in value added tax (VAT) and pay as you earn (PAYE).
The IMF has however warned the country against this optimism.
As a result, the fiscal authorities have been forced to reallocate the current budget to create fiscal space, prioritizing critical areas and depriving non-essential ones. The realignments include $10 million vote to reduce arrears to service providers, which hit $58 million in the end of the review period on June 30.
The arrears grew after ministries accumulated bills through unsanctioned procurements.
The government also announced it would revive social transfer programmes and fund food for work programmes countrywide, tertiary student support dropped four years ago, a schools computerisation programme, tertiary institutions’ infrastructure and prisons.