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State of the economy report for July - August 2012
Tendai Biti, Minister of Finance
September 06, 2012

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Introduction

1. This Report gives an update on fiscal and other macro-economic developments as at end of August 2012.

2. Since the announcement of the Mid-Year Fiscal Policy Review on 18 July 2012, the economy remains depressed, with funding challenges for both the private and public sectors, irrespective of the prevailing stable macroeconomic environment and some output improvements in sectors such as mining.

3. On the positive side, inflation for July and August remained contained at around 4%, which is below the annual average target of 5%.

4. Public finances, however, had revenue performance challenges. In July and August, collections were US$257.4 million and about US$269.2 million against revised targets of US$271.2 million and US$280.7 million.

5. This revenue under-performance implies underfunding of some planned Budget projects and programmes.

6. In the financial sector, deposits grew by 3% from US$3.59 billion in June to US$3.64 billion by July 2012. However, liquidity remained a challenge against high demand for affordable credit. Lending increased from 80% in June to about 87% of total deposits, but remained primarily short-term with lending rates still high ranging up to 30%.

7. Exports and imports maintained an upward trend, cumulatively reaching US$2.16 billion and US$5.1 billion respectively by end of August 2012. This gives a half year trade gap of about US$3 billion, reflecting faster imports growth during the period under review.

Major Challenges

8. In summary, the primary challenges still gripping the economy are:

• Revenue underperformance;
• Consequent underfunding of various urgent Government programmes such as agriculture,
• infrastructure, census and other social services;
• Lack of liquidity, constraining banks to adequately fund productive sectors;
• Low foreign investment
• Hence Low capacity utilisation and high levels of employment;
• The continued high debt overhang blocking any new financing; and
• Perceived Uncertainties and delays over the Constitution Making Process.

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