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Harare – Zimbabwe is committed to reducing its public expenditure, further reducing mining taxes and to reform its economic policies by the end of this year to help it unlock capacity to borrow more, the Finance Minister and central bank governor said in a letter to the International Monetary Fund (IMF).
The southern African country’s macroeconomic environment, however, remains difficult, Finance Minister Patrick Chinamasa and central bank governor, John Mangudya, said in the letter delivered to the IMF in the past two weeks.
“Slower growth, low productivity in the manufacturing sector, weak domestic demand, lower commodity prices, and the appreciation of the dollar, continue to weigh on the economy,” they said.
The IMF has demanded that Zimbabwe streamline its public expenditure to ensure that any potential fresh funding will not go towards recurrent expenditure. Around 80% of Zimbabwe’s budget is spent on recurrent expenditure.
Although the public wage bill remains higher at around 80% of revenue collections, the government said it intends “to lower it as a share of GDP in 2015”.
It said measures to reduce the wage bill will be presented to Cabinet. "The Civil Service Commission (CSC) has been working on streamlining public sector employment by conducting a restructuring exercise to align ministries’ staffing with their mandates, to identify duplication and redundancies.”
On a growth path
Now, the two senior government officials have said Zimbabwe is committed to implementing reforms necessary to put the economy on a growth path. These include clarifying the indigenisation policy although economists said on Thursday the government needs to speedily address investor concerns on the uncertainty the empowerment policy has created.
The mining tax regime is also to be restructured to lift off some of the burden miners are facing, especially in light of continued weakness in commodity prices. Chinamasa and Mangudya said Zimbabwe had already suspended a 15% tax on diamond sales from the country.
“We are making progress in improving the fiscal regime for the mining sector, which would help generate additional revenue without undermining investors’ incentives. We have temporarily suspended the collection of the special dividend on diamond sales on the back of the drop in production and adverse price developments,” they said.
The government has also finalised the setting up of a state company that will take-over non-performing loans from struggling finance institutions.
The IMF has been advised that President Robert Mugabe’s government is now mobilising resources to “provide ZAMCO with long-term government securities” although it would also be allowed to explore the possibility of raising “funding from private investors interested in purchasing” the non-performing loans from banks.
“We also plan to establish a sinking fund where we will place some of the proceeds of the sales of NPLs to help meet the debt servicing obligations for the government bonds,” reads the letter.
