Economy needs urgent action - finance minister

Zimbabwe's Minister of Finance Herbert Murerwa admitted that Zimbabwe's economy required urgent corrective action to avert further deterioration when he tabled his budget for 2003 on Thursday. In his budget speech Murerwa said output had declined by 19 percent over the last three years and inflation accelerated to 144 percent by the end of October. The severe drought and food shortages, a drop in the country's food supply, the scarcity of foreign exchange and negative international perceptions following the implementation of the land reform programme, were factors compounding the current economic difficulties. In response, he raised tax-free threshholds for certain sectors of the population including the elderly and the retrenched, pumped more money into the agrarian sector and introduced a tough set of measures to keep a tighter grip on valuable foreign exchange. For the land reform programme, which has seen thousands of commercial farmers forced off their land, he boosted the coffers of the Ministry of Agriculture, Lands and Rural Resettlement, and set aside several billion Zimbabwe dollars for a crop-input scheme, field trials and training and the development of irrigation infrastructure. Murerwa was quoted in the Herald as saying: "The expected growth of agriculture should improve overall economic growth, anchor sustainable inputs supply into agro-based manufacturing and distribution industries." He hoped a tax break would stimulate interest in the new Agribond which aims to raise Zim 60 billion (about US $1 billion at the official exchange rate) for resettled farmers. However, the Financial Gazette newspaper warned that the low interest of 24 percent on the bonds would discourage investors and added that the Agribonds had come too late for the current season. In an attempt to control government foreign exchange reserves, Murerwa announced the abolishment of all bureaux de change and would also raise the amount of foreign currency exporters had to surrender to the Reserve Bank, up by 10 percent to 50 percent. "The above exchange control measures have been necessitated by the gravity of the foreign currency leakages. These measures will, therefore, be reviewed in due course as and when the situation improves," he said. He also predicted that inflation would fall from its October level of 144 percent to about 96 percent next year in spite of reports that the International Monetary Fund expected it to rise to 500 percent. The opposition Movement for Democratic Change (MDC) said the budget "did little or nothing to resolve the economic crisis that has gripped Zimbabwe in the past three years". In a statement the MDC said the budget deficit was unacceptably high at 11.5 percent of GDP and interest rates were too low in the current hyper-inflationary environment. The decision to raise the retention by government of foreign exchange earnings by the private sector was a "death thrust" on the export sector and made no effort to encourage exports. It welcomed the adjustment of the tax thresholds but said the benefits would be minimal in the current inflationary environment. It also slammed the large defence allocation in the face of the withdrawal of Zimbabwean troops from the Democratic Republic of the Congo. Murerwa set aside Zim $76 billion (US $1.4 billion) for defence, while the Ministry of Health and Child Welfare received only Zim $73.4 billion (US $1.3 million). He also allocated Zim $2.5 billion (US $46 million) for procurement of anti-retroviral drugs. More details