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article imageZimbabwe cuts spending to 2012 budget, proposes major changes

By Andrew Moran     Jul 19, 2012 in Business
Harare - Due to a paucity of diamond inflows and revenues, Zimbabwe Finance Minister Tendai Biti announced that the 2012 federal budget will consist of spending cuts by 10 percent as well as a jump in tax rates.
The Zimbabwe government expected revenues of approximately $600 million from diamond sales this year, but final calculations for the first half of the year suggest that only $41.6 million has been generated. This is due to lack of inflows from the Marange fields, which has been the source of vehement discussion in the Parliament.
Finance Minister Tendai Biti stated Wednesday that the government has downgraded its GDP forecast from 9.4 percent to 5.6 percent, according to Agence-France Presse. Biti did note that the inflation rate target of five percent will be met. He added that a major factor on the government’s budget is the use of foreign travel as officials have spent more than $157 million on international trips since 2009.
Biti introduced spending cuts and tax increases to the 2012 budget, which was revised from $4 billion to $3.4 billion. The New Zimbabwe reports that a number of measures have been proposed, including an end to the black economic empowerment that requires 51 percent black ownership of any local company. Biti argues this discourages foreign investment.
He also introduced an increase of 25 percent to fuel duties, but Biti explained this would not have much effect on prices because of the drop in global oil prices. Wheat imports were another victim to a tax hike.
Public sector workers’ wages, according to Biti, are unsustainable. The government’s wage bill stands at $965 million, a figure that is eight percent higher because an extra 9,800 people have been employed, and more than half accounts for the army. Nearly three quarters of the nation’s budget is on wages for 235,000 people.
“Zimbabwe's desperate current account position as well as the budget deficit reflected in the huge domestic arrears that the government is accruing on a monthly basis is an indication that we are living beyond our means,” explained Biti, reports the Voice of America. “The first half of the year has been the most economically challenging in the last 40 months. This economy needs foreign direct investment to increase this little cake into a bigger cake that will generate jobs.”
Although China has made direct investments in the southern African country, many foreign investors have been cautious in the country due to the economic policies of the country, the uncertainty over next year’s elections, which are usually marred with violence, and power struggle between the Zimbabwe African National Union-Patriotic Front (ZANU-PF) and the Movement for Democratic Change (MDC).
More about Zimbabwe, Tendai Biti, Finance Minister, 2012 budget, marange fields
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