Accessibility links

Breaking News

Zimbabwe's Budget Deficit Balloons as Pre-Election Spending Bites

President Emmerson Mnangagwa

By MacDonald Dzirutwe

HARARE (Reuters) - Zimbabwe widened its budget deficit forecast for this year on Thursday, exposing the dire state of public finances following a spike in spending by President Emmerson Mnangagwa’s government before his election win in August.

Mnangagwa, who has announced austerity measures to reduce the deficit next year, is trying to convince investors and ordinary Zimbabweans that he will revive a once-promising economy after decades of missteps under his predecessor Robert Mugabe.

But a chronic currency crisis has stifled businesses and left the poor struggling to buy basic goods.

The budget deficit is projected to reach 11.7 percent of Gross Domestic Product this year, compared with a previous forecast of 3.5 percent, Finance Minister Mthuli Ncube said in a budget statement to parliament.

The budget also projected lower economic growth of 4 percent for this year, from 6.3 percent previously.

Mnangagwa’s ruling ZANU-PF raised salaries for civil servants and handed out free farming inputs to rural voters ahead of a tightly-contested poll.

“The huge deficit is on account of unbudgeted expenditures relating to employment costs, support to agriculture as well as ... net lending, primarily to public enterprises,” Ncube said.

The deficit is forecast to fall to five percent next year due to cuts to civil servant bonuses, a new tax on electronic payments, a higher excise duty on fuel and the retirement of government workers, he said.

The government has since 2013 failed to meet its deficit targets and all eyes will be on Ncube to see whether he can contain government spending.

Growth is forecast to fall further to 3.1 percent next year due to expected El Nino-induced drought that is seen hitting agriculture production, Ncube said.

Year-on-year inflation for this calendar year is set to spike to 25.9 percent by end of this year, the highest since 2008.

The budget speech was delayed after the speaker instructed police and parliament security to eject opposition legislators, who refused to stand when Mnangagwa entered parliament.

The opposition maintains the July 30 vote was rigged. (Reporting by MacDonald Dzirutwe Editing by Joe Brock)