Zimbabwe President Robert Mugabe’s government gave notice on Thursday it was almost doubling state spending for this year, in a move that economists said would accelerate the collapse of the economy already reeling from galactic inflation.
Finance minister Herbert Murerwa tabled a supplementary budget in parliament of 670-billion Zimbabwe dollars (US$110-million at the ”parallel” exchange rate), bringing total spending for the year to an astronomical 1 442-billion Zimbabwe dollars (US$240-million).
The original 2003 budget of 720-billion Zimbabwe dollars (US$120-million) had been exhausted, Murerwa said. ”The allocations have not accommodated all the financial demands of the government,” he said. ”The resources are simply not there.”
Almost half of the new money — 311-billion Zimbabwe dollars (US$51-million) — is due to be spent on paying just-increased government wages until the end of the year, he said.
Murerwa said that inflation — at 399,5% for the year to July according to an official announcement this week — was the central problem facing the economy.
”I believe that it is important that our policies must fight inflation,” he said.
”Continued failure to do so threatens to destroy the very social fabric of the nation.”
However, he proposed no clear remedy to deal with the problem, apart from hinting at devaluation — which he referred to as the ”export support rate” — and saying that a dual interest rate system — with lower rates for the productive sectors and higher rates for consumer spending — would be introduced ”soon”.
Economists say the supplementary budget marks a new low point in the decline of what was once one of the most robust and diverse economies in Africa, ruined by reckless economic policies, the illegal seizure of white owned farms that were the dynamo of the economy and international isolation over Mugabe’s abandonment of the rule of law.
Gross domestic product has plunged 30% in the last three years. In the last three months the value of the currency has halved to 6 000 Zimbabwe dollars per single US dollar.
The United Nations last month listed Zimbabwe at 91 in a ranking of 94 Third World countries. Murerwa referred to ”the sanctions the economy is under, following the withdrawal of international donor support, as well as the drying up of foreign lines of credit”.
International financial organisations have cut off financial aid because of the regime’s ballooning debt arrears and its failure to carry out any measures to arrest the collapse.
”It’s is inflationary and very unrealistic,” said independent economist Tony Hawkins. ”There is no mention of any new measures, except that they might adjust the exchange rate.
”There’s no inflation forecast, no growth forecast, no policies, nothing. Just assurances that things will get better, as an act of faith. It shows they have no idea of where to go.”
Murerwa told parliament that the economy’s problems were ”not insurmountable.
”Many countries within and outside the region have gone through similar experiences, and have successfully resolved these challenges,” he said.
Said Hawkins: ”The whole budget is the workings of inflation. They are going to spend virtually twice as much and they are going to get twice as much revenue, purely because of inflation.
”On the one hand he wants to take steps to check inflation, but on the other hand we are going to have an even bigger budget deficit.”
Murerwa promised ”further measures” to clamp down on illegal foreign currency dealing, and threatened commercial banks with ”stiffer penalties” for trading in hard currency below the fixed official rate of 824 Zimbabwe dollars to a single US dollar.
He referred to the critical shortage of bank notes that have forced thousands of people to queue — often for days — to try and withdraw their salaries from banks.
The government last month said it would introduce a 1 000 Zimbabwe dollar note, the highest denominations, but today Murerwa said the regime would consider ”the introduction of even high denominations.” – Sapa-DPA