Home » Industry » Chinamasa Lowers GDP Growth to 3,1 Percent

Minister Chinamasa said the downward revision of the growth figures reflects continuing low business and investment confidence, scarce liquidity, and subdued international prices for major exports.

In a Staff-Monitored Programme Letter of Intent and TechnicalW Memorandum of Understanding dated July 1, Minister Chinamasa however, said the timely and full implementation of Zim-Asset could accelerate growth to an average of 6 percent over the medium term.

The Letter of Intent and Technical Memorandum of Understanding describes the policies that Zimbabwe is implementing within the framework of a Staff Monitored Programme.

The Bretton Woods Institutions also revised downwards Zimbabwe’s growth forecasts, with the World Bank forecasting a rate of only two percent on mounting evidence of weak foreign direct investment, liquidity constraints and lack of policy clarity.

The World Bank forecasts Zimbabwe’s economy to expand by just one percent in 2015 and 0,6 percent a year later.

Minister Chinamasa said given the downward revision to the economic outlook for 2014, there are significant risks to the revenue side of the budget.

Financing space is quite constrained, as Government is facing large maturities on domestic Treasury Bills and loans in 2014.

He said as part of Zim-Asset Government intends to accelerate re-engagement on debt resolution with the international financial institutions and with other creditors.

Minister Chinamasa said inflation continues to be very low and has recently dipped into negative territory, recording -0,3 percent year-on-year in April 2014, reflecting weak domestic demand, tight liquidity conditions and the appreciation of the US dollar against the South African rand, the currency of Zimbabwe’s main trading partner.

He anticipates that inflation will average around 0,8 percent in 2014.

For the end-June 2013 test date, Zimbabwe met two of the six quantitative targets: The floor on protected social spending and the floor on payments to the Poverty Reduction and Growth Trust. The floor on the stock of usable international reserves was also achieved.

Zimbabwe missed the continuous ceiling on new non-concessional external debt by a small margin, due to the signing of a $319 million loan with the Export-Import Bank of China in November 2013 to finance the Kariba South Power Station expansion.

Although the continuous zero ceiling on new domestic arrears was missed, Minister Chinamasa believes that the country made significant progress than envisioned under the SMP.

“In fact, although we accumulated some new domestic arrears in 2013, we also prioritised the clearance of pre-2013 arrears, and on balance, the overall stock of arrears declined by $54 million (about 0,4 percent of GDP) in 2013, which compares favourably with the reduction of $23 million envisaged under the original programme,” he added.

For the end-December 2013 test date, Zimbabwe met three of the six revised quantitative targets — The floor on usable international reserves, the floor on payments to the PRGT, and the continuous ceiling on new non-concessional borrowing.

It missed the modified target for the cumulative primary fiscal balance on a cash basis by about 1,7 percent of GDP, mostly due to substantial weakness in tax revenues in the last two months of 2013.

Owing mostly to the weakness in revenue in Q4, the country missed the floor on protected social spending by about 0,3 percent of GDP and our stock of domestic arrears overshot its ceiling by about 0,3 percent of GDP.

The minister said Zimbabwe made progress on the structural reform front by attaining three of the five structural benchmarks for the first review and one of the five structural benchmarks for the second review.

In particular, the new Income Tax Bill and the RBZ Debt Assumption Bill are now before Parliament.

He said that the wage bill now projected to increase by 14 percent this year up from eight percent projected in the 2014 Budget.

Zimbabwe plans to extinguish the remaining stock of pre-2013 domestic payments arrears amounting to $23 million by end-2014.

“However, given the very tight resource constraints in the 2014 Budget, it would be very difficult for us to continue reducing the total stock of arrears of domestic payment in 2014. We plan to eliminate the total stock of end-2014 domestic arrears by end-2016,” he said.

Source : The Herald