Zimbabwe struggles with budget, donors want reforms

HARARE (Reuters) – A lack of cash is likely to prevent Zimbabwe unveiling any major projects in its 2010 budget, but analysts say it could provide the impetus for the reforms needed to attract foreign aid to rebuild the economy.\r\n

Finance Minister Tendai Biti is due to present his 2010 budget on Wednesday — the first full budget by the unity government formed 10 months ago to try to end a decade-long political and economic crisis in the southern African nation.

"This is a straightforward issue. The government is broke and is living hand to mouth," said veteran independent economist John Robertson.

"There is very little money for the pressing demands on the government and until they are able to get some massive help there is very little they will be able to do," he told Reuters.

"The positive side is that we may see greater movement towards reforms, more pressure to respect private property rights and an appreciation that the country needs massive international assistance and goodwill to realise its goals."

Zimbabwe is trying to reconstruct an economy that the government estimates contracted by nearly 50 percent from 2000-2008.

The global economic downturn and festering tensions in a ruling coalition between President Robert Mugabe and his arch rival, Prime Minister Morgan Tsvangirai, are not helping.

Biti — a senior figure in Tsvangirai’s Movement for Democratic Change (MDC) — has promised a "growth oriented" budget, but the coffers are bare, and there is no sign of any significant aid on the horizon.  

The 2009 budget was about $1 billion and, according to a draft medium-term economic development plan released this month, 2010 spending is only likely to be double that.

Biti has about a quarter of the projected budget at his disposal — $500 million from the IMF disbursed earlier this year as part of the fund’s global assistance package to countries to help them cope with the worldwide financial crisis.

The IMF allocation is the first major foreign aid Zimbabwe has received in a decade after Mugabe’s ZANU-PF party fell out with Western donors over its policies.

But the money is a fraction of the nearly $10 billion required to rebuild the economy and sustain the fragile growth recorded since this year’s formation of a unity government.

Huge sums are needed to repair pot-holed roads, dilapidated hospitals and broken water and sanitation systems blamed for a cholera oubtbreak that killed more than 4,000 people last year.

The economy is starting to look up despite disputes over government policies, the pace of democratic reforms, Western sanctions and the appointment of senior state officials.

The government and the IMF are forecasting 3.7 percent growth this year. The Economic Planning Minister has forecast 15 percent average annual growth between 2010-2015.

Biti has forecast that inflation will end 2009 at 6.4 percent after turning negative earlier in the year following the adoption of foreign currencies in place of the Zimbabwe dollar, which had been left worthless by hyperinflation.

Inflation had reached 231 million percent in July 2008, according to official figures. The IMF says it had rocketed to a staggering 500 billion percent by Dec 2008. 

Another challenge for Biti is motivating state workers earning an average $150 a month with wage increases and tax cuts.

"How the Finance Minister achieves the desired growth would be determined by his dexterity in allocating the scarce resources among the competing interests," the private weekly Finance Gazette said in a commentary.