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Murerwa faces torrid time over 2007 budget
Shame Makoshori, The Zimbabwe Independent
October 27, 2006

http://www.theindependent.co.zw/viewinfo.cfm?linkid=12&id=8119

ANALYSTS said this week Finance minister Herbert Murerwa had to devise creative strategies for increased revenue collection and impose tight controls on government expenditure next year to curtail huge deficits.

The analysts’ views come as Murerwa, who has held pre-budget consultations this month, is preparing to unveil his 2007 budget proposals in parliament next month.

Murerwa last week blamed the current deficit, held responsible for stoking inflation, on hyperinflation and adjustments to civil servants’ salaries in May.

Analysts said Murerwa should refrain from overtaxing struggling companies and workers.

University of Zimbabwe Graduate School of Management lecturer, Isaac Kwesu, told businessdigest fiscal indiscipline in government had generated huge budget deficits, and there was little prospect Murerwa could rein in government spending against the background of rampaging inflation.

Murerwa presented a $327,2 trillion ($327,2 billion under the new currency system) supplementary budget that bloated the 2006 budget to $451 trillion, from the $123,9 trillion proposed for the year’s budget.At the time the supplementary budget was presented, most government ministries had spent their budgets and were already in the red.

There are reports that some government departments have already spent their budgets and are struggling to pay salaries.

Kwesu said such developments made planning for Murerwa’s 2007 budget difficult, considering that inflation is projected by the International Monetary Fund (IMF) to top 4 000% next year. In that case, any proposal underestimating the high inflation environment is likely to miss targets within months, creating the danger of quarterly supplementary budgets.

"High inflation and more price increments will characterise 2007," Kwesu said.

"Murerwa must improve on revenue collection. People are watching if he will introduce new taxes or increase the existing taxes. The bottom line is fiscal discipline, which is lacking," said Kwesu.

"Government relies on corporate tax. But this is shrinking because companies are closing down. Pay As You Earn (PAYE) has been affected by high levels of unemployment. The main sources of government revenue are drying up," he said.

Kwesu added that Value Added Tax (VAT) is dependent on consumers’ purchasing power, which has also been eroded by hyperinflation.

Murerwa has therefore little room for manoeuvre.

Government already heavily borrowed on domestic market where the debt stock increased two fold between July and September 2006 from $50 billion to $119,4 billion due to high deficits.

Economists fear that the situation next year could spark increased money printing, something that will further fuel inflationary pressures in the economy.

Kwesu blamed government’s poor inflation forecasts for the continuing recession because it rendered planning difficult. Budgets are prepared on basis of inflation forecasts and an outturn higher than projections normally spawns a higher budget deficit.

Kwesu said government had to learn from past mistakes to avoid highly inflationary budget deficits, the major cause of supplementary budgets in the country.

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