Politics casts shadow over economic recovery – Analysts

Budget Statement:

2010 National Budget pg 1-72
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2010 National Budget pg 73-106
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2010 National Budget pg 107-142
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2010 National Budget pg 143-167
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2010 National Budget pg 168-172
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A unity government formed by bitter rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai in February to end a protracted political crisis remains fragile, with tensions simmering over how to share executive power.

Finance Minister Tendai Biti said on Wednesday the coalition government had nonetheless presided over Zimbabwe’s first growth in a decade, with expansion of 4.7 percent seen this year after the economy shrank by 50 percent between 2000-2008.

In his 2010 national budget speech, Biti projected 7 percent economic growth for next year.

Analysts say the growth forecasts may be overly optimistic, with much depending on the country’s wobbly power-sharing government holding and pushing through key reforms necessary to attract Western financial support.

"Growth depends on what happens on the political front. The whole budget is predicated on an improvement on the political situation," said Prosper Chitambara, an analyst at the Labour and Economic Research Institute of Zimbabwe. "Nobody really knows what will happen there."

The unity government has managed to stabilise an economy once in free-fall, replacing a worthless Zimbabwe dollar with multiple foreign currencies to dramatically bring down inflation from 231 million percent in July last year.

Biti said annual inflation was seen at -5.5 percent by the end of 2009, before accelerating to 5.1 percent in 2010.

But the fragile coalition could undermine the progress, with Mugabe and Tsvangirai feuding over senior appointments, including that of central bank governor and attorney-general and also bickering over who is to blame for Western sanctions and the slow pace of media and political reforms.

ECONOMY SENSITIVE TO POLITICS

The economy’s sensitivity to political upheaval was most recently illustrated by the Zimbabwe Stock Exchange’s main index, which fell 13 percent in October after Tsvangirai and his MDC party boycotted cabinet, accusing Mugabe of failing to honour the power-sharing pact.

"For the current stability to be consolidated, all outstanding disputes destabilising the government of national unity need to be resolved, that is the main assumption on which an economic turnaround is premised," John Makumbe, a political commentator and Mugabe critic said.

"Failure to do that makes all prospects bleak and we can forget about attracting investment and foreign aid, which is badly needed."

Tsvangirai said on Thursday talks between the two sides on implementing the conditions of the unity government had made progress.

Western donors, expected to provide the bulk of what Zimbabwe needs to reconstruct its economy, are reluctant to release aid initially suspended over policy differences with Mugabe, and insist Harare first implements broad political reforms.

"The minister (Biti) said this was to be a reconstruction budget, but he has very limited fiscal space. As a result, there is inadequate spending on infrastructural projects that are key to recovery," Chitambara said.

"I foresee job action (strikes), given the limited resources for public service wages, which will not be adjusted in line with next year’s projected year-end inflation of 5.1 percent."

Government, which is the largest employer in an economy where unemployment is above 80 percent, currently pays its workers an average $150 per month and has had to fend off strikes by teachers and doctors this year.

In 2005 an estimated 83 percent of the population lived on below $2 a day, and the situation worsened in the next three years, data shows.

Biti classified 85 percent of Zimbabwe’s population as the "submerged and drowning poor".