Ho-Hum Supplementary Budget

UNCLAS HARARE 001697

SIPDIS

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: ECON EINV PGOV ZI
SUBJECT: Ho-Hum Supplementary Budget



1. Summary: The GOZ's supplementary budget announcement
held no surprises. Spending for calendar year 2003
increased 85 percent, accounting for higher than forecast
(by the GOZ) inflation. In his speech to parliament,
Finance Minister Herbert Murerwa brokered no solutions to
Zimbabwe's many economic crises. End Summary.


2. In what has become an annual ritual, the GOZ announced
a supplementary budget on August 21 that revises the
initial budget's fanciful spending projections. The
Z$672 billion supplementary budget increases the
original's budget's Z$784 billion allocation to Z$1,442
billion. The GOZ's inability to pare inflation down to a
projected 96 percent (it's currently 400 percent) has
meant higher outlays in local currency. The pay of most
civil servants has more than doubled.

Controversial Issues Not Addressed
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3. The Finance Minister did not say:

- whether nominally higher tax revenues (due to
inflation) would cover the proposed appropriations, or
how much the GOZ intends to borrow through domestic
bonds. The GOZ published no new revenue projections.

- how and when the GOZ would renormalize fuel imports.
(Gas stations have been completely dry for four months.
Most motorists depend on the black market.)

- when and by how much the GOZ will devalue the
Zimdollar. The official rate of Z$824:US$1, less than
one-sixth the market rate, causes exporters to sacrifice
nearly half their revenue. (They must exchange 50
percent of earnings at the official rate.) A more
realistic exchange rate would undoubtedly boost GOZ
export receipts.

- how the GOZ intends to solve the cash crisis. The
shortage of banknotes has made life taxing for all
Zimbabweans, distressing for the poor.

Comment
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4. Last week's budget announcement reinforces the
perception that GOZ decision-making remains comatose.
While there are vested fuel interests that stand to lose
market share when multinationals reenter the game, the
GOZ has little to lose by raising the official exchange
rate (few can buy dollars at Z$824:US$1) or printing
larger banknotes (a matter of pride). Somehow it is
impossible for reasonable proposals from the Ministry of
Finance or Reserve Bank to move up the line.

Sullivan