MDC response to 2003 Budget for Zimbabwe
Full Mdc Press Statement
The 2003 Budget
As expected, the budget statement issued today by the Minister of Finance, Dr Herbert Murewa, did little or nothing to resolve the economic crisis that has gripped Zimbabwe in the past three years. There is no attempt in the 2003 budget to correct the macro economic fundamentals that continue to determine the downwards spiral in all sectors of the economy.
In the current year, Zimbabwe will have the distinction of the most rapidly shrinking economy in the world. We have predicted for some time that the GDP would decline this year by at least 12 per cent, inflation would exceed 200 per cent per annum by year-end and exports shrink to less than a third of the level that prevailed in 1997. As a consequence of this rapid fall in economic activity, employment has shrunk by a third and continues to fall rapidly. Even though prices are rising faster than expected and tax rates have risen dramatically as a result, the income of government was unable to meet expenditure and the budget deficit which has been increased in this budget to 11.5% of GDP (or $230.2 billion) is unacceptably high.
What makes this deficit even more unacceptable is that it has incurred despite the fact that the state continues to fall behind in its servicing of foreign debt and also holds interest rates at unacceptably low levels. It must be restated that low interest rates in a hyper inflationary environment, in effect impose a massive tax on all who hold savings. This is not reflected in the budget and is one of the reasons why the wealth of the nation, accumulated over the past century, is being wiped out.
The decision to raise the retention by government of foreign exchange earnings by the private sector, to 50 per cent from 40% e a level that has prevailed in the past two years, is a decisive death thrust on the side of the productive sector and particularly the export sector. The budget makes no serious attempt to encourage exports, on the contrary raises a hammer on exports through an increase and enhanced clamp-down on corporate foreign currency accounts. The further surrender of the remaining 50% of exporters’ funds to the RBZ, with whatever conditions to be worked out is yet another clear signal to existing and future exporters that in Zimbabwe this is an uncertain and thorny field. The 2003 budget is the last straw to break the export sector.
In effect this means that exporters and the tourism industry, already struggling with viability problems and critical shortages of foreign exchange to finance their own activities, will have to sell still more of their foreign exchange at the ridiculously low official exchange rates, after sourcing it on the parallel market at a premium.
Despite all requests the State has yet to give an explanation to the nation on just what it does with the more than US$1 billion a year that it is currently buying from exporters at official rates. Theoretically this amount of foreign exchange should be more than adequate to meet all essential import requirements. The long queues outside filling stations and the shortage of drugs at hospitals are all testimony to the fact that the government is not using existing foreign exchange earnings properly. To increase retentions to 50 per cent is just a further attempt to extend this theft of public resources to the detriment of every Zimbabwean.
The adjustment of the threshold below which tax will not be levied is welcome but it must be noted that any benefit will be short lived in the current inflationary environment. It is now expected that inflation will exceed 500 per cent in 2003 and under these circumstances the MDC feels that it is time to consider the indexation of economic fundamentals such as salaries and tax thresholds. Although this would entrench inflation at very high levels, it would serve to protect the welfare of wage earners and especially civil servants who find themselves being left behind by the slow response of the State to their plight.
The MDC must restate its own view that no economic stabilisation and recovery can begin until the political preconditions are met in full. These are: -
- A return to the rule of law.
- The adoption of a land reform package that is legal, just and transparent.
- The resumption of normal relations with the international community.
- The restoration of the legitimacy of the government in the eyes of both Zimbabwean and the global community.
Once these conditions are met in full, then attention can be given to restoring stability and growth to the Zimbabwe economy. Until then, the downwards spiral in economic activity, employment and incomes must be expected to continue. This regime simply does not have the capacity to tackle these issues any longer and the MDC calls for urgent talks to get the country and its failing economy, back on its feet.
It must be noted that Zanu PF has now been in power for 22 years. During this time the life expectancy of every Zimbabwean has declined by 22 years, incomes have fallen to levels below those that prevailed in 1965. Industrial production has fallen to levels last seen in 1970 and the mining industry has shrunk by almost half. Tourist arrivals, once predicted to reach 2 million visitors a year by 2003, remain stuck at 20 per cent of pre 1997 levels. Agriculture, once the mainstay of the economy, is in a shambles and food shortages are predicted well into 2004.
Zimbabwe was once the pride of central and southern Africa as a democratic State doing its best to improve and upgrade the lives of its people. Today we are the laughing stock of the region with a failed economy, our currency is collapsing and our people wallowing in poverty and hunger. The budget is just another symbol of the failure of Zanu PF to neither appreciate nor understand the nature of the crisis they have created. Unfortunately the majority of the vociferous ZANU PF supporters and leaders in the gravy train do not suffer the consequences of their actions. The obvious wealth of the new elite with their conspicuous life styles is testimony to this and a shadow over all of Africa.
It is disgusting to note that Defence has been allocated $76 billion despite the fact that Zimbabean troops have been withdrawn from the Congo. There is no justification whatsoever especially when a large chunk of this money is not going towards the welfare of the soldiers.
The budget is predicated upon weak macro-economic fundamentals and is silent on key issues such as exchange rate re-alignment, the food crisis, export incentives and others. It is also silent on measures to eradicate poverty and the creation of jobs.
All in all Murerwa's budget is a non-event and hopeless. No wonder why "Bishop" Murerwa had to seek divine intervention from the bible in face of an insurmountable task. The current economic crisis cannot be resolved without addressing the problem of governance and market confidence. And because the nation has been short-changed in the ZANU PF budget, the MDC may have to reconsider the crafting of its shadow budget as an alternative in order to show the difference.
Tapiwa Mashakada
Shadow Minister For Finance
14 November 2003
MDC Information Department
2nd Floor, Harvest House, Nelson Mandela/Angwa
Cell: 091 248 570/091 370 326 Fax: 781 040
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