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Post budget developments in the economy
Tendai Biti, Minister of Finance
January 25, 2012

Introduction

The critical importance of the economy and macro-economic stability in our country predicates that there should be regular monitoring and oversight of all macro-economic indicators and vitals to allow Government, Business, Labour and all other stakeholders to plan.

Given this imperator, Treasury will, therefore, be providing periodic communications on major developments within the economy.

Pursuant to this, I am pleased to advise that each month, I will be providing a Monthly Budget Dashboard that will outline monthly budgetary developments, tracking in particular Budget performance in the key areas of public sector investment and social service delivery.

In addition, the Monthly Budget Dashboard will also capture and outline important developmental challenges and issues affecting our economy.

Over and above this, Treasury will also produce quarterly economic developments, quarterly budget implementation updates and, of course, the Mid Term Fiscal Policy Review.

The Monthly Budget Dashboard and the quarterly economic developments are Statutory obligations mandated upon Treasury by Section 7(2)(a) and Part 4 of the Public Finance Management Act Chapter [22:19].

2011 Financial Accounts

The Accountant General is in the process of finalising the 2011 Financial Accounts of the Republic of Zimbabwe and Treasury will Gazette the same in February 2012.

These accounts will capture the Budget outturn for 2011. This is an important issue given the fact that the figures I presented in the 2012 Budget last November were only up to 31 October 2011.

However, the Preliminary Annual Statement of Financial Performance for the year ended 31 December 2011 indicates total revenue at US$2 921 million and total expenditure at US$2 890.6 million, resulting in an overall 2011 Budget surplus of US$30.4 million.

This outturn allowed for Government to post a small positive opening balance which became available for supporting Budget expenditures in January 2012, mainly salaries and pension payments, at a time when revenue inflows are seasonally low.

The original 2011 Budget had projected total revenues at US$2 746 million, an estimate which I had revised upwards to US$2 950 million at the time of the presentation of the 2012 Budget in November 2011.

The Preliminary 2011 Budget revenue inflows are broken down as follows:

Item US$ million
Taxes on Income & Profits 1 072.5
Customs Duties 332.9
Excise Duties 306.6
VAT 911.6
Other Taxes 37.5
Non Tax Revenue 259.9
Total 2 921.0

The breakdown of the Preliminary 2011 Budget expenditures is as follows:

Item US$ million
Employment Costs 1 816.8
Goods and Services 604.7
Capital Expenditure 424.1
Total 2 890.6

Liquidity Challenges

Stakeholders will be aware of reports of challenges with regards to liquidity in the entire economy, including the financial system.

Part of this relates to festive season expenditure pressures on financial institutions and the RTGS system.

This included economy wide high volumes of high value transactions, compounded by payments for civil servants salaries and bonuses towards the end of December 2011.

As a result, delays and temporary suspensions of some RTGS payments have been experienced.

Developments of log jams in RTGS payments also adversely impacted on the processing of Budget payments for Government projects and related payments.

I am happy to note that the Reserve Bank, in conjunction with the Bankers Association, has remained on top of the situation, with the latest indications showing resolution of some of the major challenges that the RTGS system encountered.

In this regard, the Reserve Bank will be making the necessary announcements as part of their routine interaction with the market.

It will be necessary that given the high volume and high value of Budget transactions that Government plays its part with regard to supporting orderly transactions within the financial system.

Pursuant to this, Treasury is instituting the following measures:

Staggering of High Value Transactions

Staggering payments of high value transactions, in order to allow banks sufficient time to plan for such transactions.

Notice Period for High Value Transactions

Introducing a system of Notice Periods for high value transactions, in order to give banks adequate time to prepare for the processing of Budget payments.

Notice Periods will be related to the value of the transactions, up to a maximum of 7 working days.

Balances with Banks

Allowing for the build up of reasonable balances with banks to facilitate orderly transactions within the financial system. These will be reviewed periodically in line with developments in market liquidity.

Civil Service and Pension Payment Dates

Reviewing the four monthly civil service and pension payment dates to allow for a time lag of at least four (4) business days between payments.

Financial Sector Surveillance

Continued close monitoring of the status and performance of the financial sector by the Reserve Bank.

Enhanced collaboration and sharing of information by all the financial sector regulators which include the Insurance & Pensions Commission (IPEC), and the Securities Commission (SEC).

Transfers to the Exchequer Account

Reports from the Accountant General's Office indicate that some banks are in arrears in making ZIMRA payovers to the Treasury Main Exchequer Account.

This has prejudiced Government revenue inflows, compromising the planned implementation of Budget programmes and projects.

To dissuade banks against this practice, Treasury is introducing disincentive measures against financial institutions that are taking long to action ZIMRA payment instructions in favour of the Treasury Main Exchequer Account.

ZIMRA has already given each of the concerned banks the necessary initial written warnings, and has demanded immediate remittance of all overdue revenue pay-overs to the Exchequer, as well as written guarantees of timely remittances.

Use of SDRs

The balance in Zimbabwe's General SDR Allocation Account at the IMF, net of the US$142.1 million owed to the IMF's Poverty Reduction and Growth Fund Facility (PGRF) Account, currently stands at US$212 million.

This balance is after Zimbabwe's drawdown of US$50 million in December 2009 and a further US$100 million in February 2010 in support of various infrastructure projects.

To augment resources allocated in the 2012 Budget, Treasury is withdrawing resources amounting to US$110 million from Zimbabwe's General SDR Allocation Account at the IMF in support of the following:

Infrastructure

Financing of priority infrastructure projects which could not be accommodated in the 2012 Budget totalling US$40 million.

Lines of Credit

US$30 million for lines of credit to the productive sectors of the economy currently operating at low capacity. This is part of Government's contribution under the Distressed and Marginalised Areas Fund (DiMAF) where Old Mutual has already contributed its US$20 million obligation.

Lender of Last Resort

US$20 million towards the US$100 million announced in the 2012 Budget in support of augmenting the US$7 million already available in the Reserve Bank for its Lender of Last Resort mandate.

Agriculture

US$20 million towards complementing the previously announced support towards Agriculture.

Banks' Statutory Reserves owed by the Reserve Bank

The Reserve Bank currently owes US$83 million to banks in statutory reserves, contributing to some of the prevailing liquidity challenges in the financial system.

To facilitate transactions in the money market, Treasury is introducing Discounted and Tradable Paper against Reserve Bank statutory reserve liabilities to banks willing to participate.

The modalities and the terms and conditions of issuance will be developed in conjunction with the Reserve Bank and the Bankers Association.

Introduction of this instrument will overcome some of the security challenges banks have been facing with regard to accessing the US$7 million Lender of Last Resort funds at the Reserve Bank.

Tariff Measures Supportive of Domestic Production

Concerns have been raised by stakeholders over some of the Tariff Measures Government implemented from 1 January 2012 as part of the 2012 Budget in order to support increased domestic production and level the playing field vis-à-vis some of the imported commodities.

This was also against the background of an unsustainable over-dependence on consumption of imports at the expense of domestic production.

During the period January to December 2011, declared export shipments amounted to US$3.67 billion. This, though 65% higher than the US$2.22 billion declared in 2010, is significantly out of balance with the overall figure of reported foreign payments for various imports of US$6.28 billion.

Clearly, this level of reliance on external savings is unsustainable, making the institution of measures supportive of growth in domestic production unavoidable.

Treasury has, therefore, embarked on the necessary stakeholder consultative exercise. The appropriate measures to review some of the measures will, thereafter, be instituted.

Growth & Inflation Prospects

Prices

In my 2012 Budget presentation I had projected an annual average inflation of 4.1% for 2011 and a year-end projection of 5%.

However, I am pleased to note that actual developments to December 2011 show lower inflation numbers, with an annual average outturn of 3.5% and a year end of 4.9%.

Growth

With regards to overall economic growth developments, Treasury is still consolidating and finalising the submissions on the performance of the various sub-sectors to the end of 2011.

Indications, however, are that the economy was on track with regard to realising the projected 2011 real GDP growth rate of over 9%. 

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