Mid Fiscal Review 2010

8/8/2019 Mid Fiscal Review 2010

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ZIMBABWE

THE 2010 MID-YEAR FISCAL POLICY REVIEW

Presented by the Minister of Finance

Hon. T. Biti, M.P.

14 July 2010


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Table of Contents

INTRODUCTION .............................................................................................................. 7 Recalling STERP I & II .................................................................................................. 8

GLOBAL ECONOMIC DEVELOPMENTS ................................................................... 13 Inflation ......................................................................................................................... 16 Commodity Prices ......................................................................................................... 17

Metals and Minerals ................................................................................................. 17 Crude Oil .................................................................................................................. 18

Agricultural Commodities ......................................................................................... 19 Implications for Developing Countries ......................................................................... 22

SECTORAL DEVELOPMENTS ..................................................................................... 23 Agriculture .................................................................................................................... 25

Cereal Production .................................................................................................... 26 Mining ........................................................................................................................... 30

Diamonds .................................................................................................................. 36

Manufacturing ............................................................................................................... 37 Food, Beverages & Tobacco ..................................................................................... 38 Cotton, Clothing & Textiles ...................................................................................... 38 Chemicals & Pharmaceuticals ................................................................................. 39 Metal Industry ........................................................................................................... 39

Leather Industry ........................................................................................................ 40 Fertilizer ................................................................................................................... 40

Tourism ......................................................................................................................... 41 Construction .................................................................................................................. 43 Consumption & Investment .......................................................................................... 43 Inflation ......................................................................................................................... 44

Financial Sector ............................................................................................................ 46 Zimbabwe Stock Exchange ....................................................................................... 49

External Sector .............................................................................................................. 51 FISCAL DEVELOPMENTS ............................................................................................ 53

Revenue......................................................................................................................... 54 Value Added Tax (VAT) ............................................................................................ 55 Customs Duty ............................................................................................................ 55

Pay As You Earn (PAYE) .......................................................................................... 56 Corporate Tax ........................................................................................................... 56

Excise Duty ............................................................................................................... 57 Mining Revenue ........................................................................................................ 57

Other Taxes ............................................................................................................... 57 Non-Tax Revenue ...................................................................................................... 58

Expenditure ................................................................................................................... 58 Recurrent Expenditures ........................................................................................... 60 Employment Costs ..................................................................................................... 60 Civil Service Wage Bill ............................................................................................. 61 Operations and Maintenance .................................................................................... 63

Payments to Service Providers ................................................................................. 64


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Foreign Travel .......................................................................................................... 64 Foreign Missions ...................................................................................................... 65 Social Service Delivery ............................................................................................. 65 Grants and Transfers ................................................................................................ 66

Capital Expenditures ..................................................................................................... 67

Energy ....................................................................................................................... 67 Transport .................................................................................................................. 69 Road Dualisation ...................................................................................................... 69 Airports Infrastructure .............................................................................................. 69 Railway Infrastructure .............................................................................................. 70 Road Maintenance .................................................................................................... 70 Water and Sanitation ................................................................................................ 72

Agriculture Support .................................................................................................. 73 Telecommunications ................................................................................................. 77

Housing ..................................................................................................................... 77 Vote of Credit ............................................................................................................... 78

STRUCTURAL CHALLENGES ON THE ECONOMY ................................................ 80

Reconstruction .......................................................................................................... 80 Equitable Growth ...................................................................................................... 81 Stabilisation .............................................................................................................. 81

Lack of Capital .......................................................................................................... 82 Foreign Direct Investment ........................................................................................ 83 The Liquidity Crunch and the High Cost of Money .................................................. 83

Lack of Fiscal Space ................................................................................................. 84 Debt Overhang .......................................................................................................... 85 Management of Public Resources ............................................................................. 86

Lack of Project Implementation Capacity ................................................................ 86 Skills Gap .................................................................................................................. 87

Energy ....................................................................................................................... 87 High Cost of Utilities ................................................................................................ 90 Other Tariffs .............................................................................................................. 90

Labour Costs ............................................................................................................. 91 Land Utilisation ........................................................................................................ 91 Infrastructure ............................................................................................................ 93 Human Development ................................................................................................. 93 Environmental Protection ......................................................................................... 93 Hyperinflation Hangover .......................................................................................... 94 Accountability over Public Resources ...................................................................... 94 Common Vision ......................................................................................................... 94

Business as Usual Mentality ..................................................................................... 95 REVISED MACRO-ECONOMIC FRAMEWORK ........................................................ 95 POLICY INTERVENTIONS ........................................................................................... 99

Inflation ....................................................................................................................... 102 Duty on Basic Commodities .................................................................................... 104

Lines of Credit ............................................................................................................ 104 Available Facilities in the Second Half of 2010 ..................................................... 106


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Diaspora Bond ........................................................................................................ 106 SADC Support ......................................................................................................... 107

Foreign Direct Investment .......................................................................................... 107 Leveraging Mineral Resources ................................................................................... 109

Mineral Policy ........................................................................................................ 109

Mining Claims ......................................................................................................... 110 Mineral Beneficiation ............................................................................................. 110 Mineral Taxation .................................................................................................... 110

Inter-Generational Fund ......................................................................................... 111 Diamonds ................................................................................................................ 111 Rule of Law ............................................................................................................. 111 Commitment to the Kimberly Process ..................................................................... 112 Sale of Diamonds within the Kimberly Process ...................................................... 112

Amendments to the ZMDC Act ................................................................................ 113 Diamond Act ........................................................................................................... 114 Past Diamond Sales ................................................................................................ 115

Public Utilities ............................................................................................................ 116

Debtors .................................................................................................................... 117 Wage/Revenue Ratios .............................................................................................. 117 Capitalisation .......................................................................................................... 118

Rationalisation of State Enterprises ....................................................................... 118 Over-sight over Public Utilities .............................................................................. 119

Public-Private Partnerships ......................................................................................... 120 Fuel Importation Transport Mode .......................................................................... 120 Review of Labour Laws ........................................................................................... 121

Financial Sector Reforms ............................................................................................ 123 Central Bank Reforms ............................................................................................. 123 Currency Reforms ................................................................................................... 126 Smaller Denominations ........................................................................................... 126 Micro Finance Institutions ...................................................................................... 127

Lender of Last Resort .............................................................................................. 127 Securities Market ........................................................................................................ 128

Securities Rules & Regulations ............................................................................... 128 Central Securities Depository ................................................................................. 128

Automated Trading System ..................................................................................... 129 Insurance and Pensions ............................................................................................... 130 Debt Relief Strategy & Process .................................................................................. 130

Debt Management Office ........................................................................................ 131 Multi Donor Trust Fund .............................................................................................. 132

Aid Coordination and Management ........................................................................ 133 Data Availability ......................................................................................................... 134 Revenue Retention Funds ........................................................................................... 135

POTRAZ Universal Service Fund ........................................................................... 137 Public Shareholding ................................................................................................ 141 Reserve Fund .......................................................................................................... 142

EXPENDITURE RATIONALISATION........................................................................ 143


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Recurrent Expenditure ................................................................................................ 144 Outstanding Bills to Service Providers ................................................................... 144 Social Protection ..................................................................................................... 145

Foreign Service Payments ...................................................................................... 145 Other Recurrent Expenditures ................................................................................ 146

Capital Expenditure .................................................................................................... 146 Energy ..................................................................................................................... 146 Debtors .................................................................................................................... 147 Maintenance Fund .................................................................................................. 148

Pre Payment Meters ................................................................................................ 149 Water and Sanitation .............................................................................................. 149 Transport ................................................................................................................ 150

Aviation ................................................................................................................... 150 Rail .......................................................................................................................... 150 Social Service Delivery ........................................................................................... 151

Education ................................................................................................................ 151

E-learning ............................................................................................................... 152

PUBLIC EXPENDITURE MANAGEMENT ................................................................ 153 Public Finance Management Legal Framework ......................................................... 153

Public Finance Management Act ............................................................................ 153 Audit Office Act ....................................................................................................... 154

Public Finance Management System .......................................................................... 155 Quality Assurance ................................................................................................... 155

Equipment Procurement ......................................................................................... 156 Training ................................................................................................................... 156

Internal Audit Training ........................................................................................... 157 District Roll Out ...................................................................................................... 157 Help Desk ................................................................................................................ 157 Curbing Accumulation of Bills ................................................................................ 158 Vehicle Hire ............................................................................................................ 158

Loss of Public Assets ............................................................................................... 159 Tendering ................................................................................................................ 160

Advance Payment .................................................................................................... 161 Contract Management ................................................................................................. 162

Non Performing Contractors .................................................................................. 162 Electronic Funds Transfer ........................................................................................... 163

REVENUE MEASURES ............................................................................................... 164 Redrafting of the Income Tax Act ........................................................................... 164 VAT Fiscalised Recording of Taxable Transactions .............................................. 165

Electronic Cargo Tracking System ......................................................................... 166 Revenue Enhancing Measures .................................................................................... 167

Tax Exemptions and Deductions ............................................................................. 167 Suspension of Duty on Motor Vehicles Imported by Tourist Operators ................. 167

Rebates of Duty which no longer reflect Policy Priorities ..................................... 168 Taxation of the Mining Sector .................................................................................... 169

Review of Royalties on Minerals ............................................................................. 169


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Export Tax on Unprocessed Chrome ...................................................................... 170 Special Initial Allowance ........................................................................................ 171

Fees, Charges and Fines .............................................................................................. 171 Fines on Motor Vehicles Used to Smuggle Goods .................................................. 171

Relief Measures .......................................................................................................... 172

Regional Integration ............................................................................................... 172 Duty on Competing Products Imported under SADC ............................................. 173 Suspension of Duty on Inputs used by the Local Industry ...................................... 174

Review of Suspension of Duty on Basic Commodities ............................................ 175 Dumping of Sub-standard Imported Products ........................................................ 177 Rebate of Duty on Fiscalised Electronic Tax Registers and Fiscal Memory Devices................................................................................................................................. 178

Duty on Textiles, Clothing and Footwear ............................................................... 178 Administration of Certificates of Origin ................................................................. 179 Export of Scrap Metal ............................................................................................. 180

Alternative Energy Sources ........................................................................................ 180

Excise Duty ................................................................................................................. 181

Bond Requirements for Excisable Products ........................................................... 182 Pay As You Earn (PAYE)........................................................................................... 183

Tax-Free Threshold ................................................................................................ 183 Remittance Date ...................................................................................................... 183

Value Added Tax ........................................................................................................ 184 Remittance Period ................................................................................................... 184 VAT Zero Rating - Day Old Chicks ........................................................................ 184

Withholding Taxes ...................................................................................................... 185 Non-Resident Tax on Remittances .......................................................................... 185

Capital Gains Tax ....................................................................................................... 186 Withholding Tax on Unlisted Securities ................................................................. 186

Penalties for Late Payment of Tax .............................................................................. 186 Departmental Practice Notes .................................................................................. 186

Tax Amnesty ............................................................................................................... 187 Dispute Resolution, Objections and Appeals.............................................................. 188 Customs Administration ............................................................................................. 188

Transit Fraud .......................................................................................................... 188 Pre-Clearance of Goods ......................................................................................... 189

Re-organising ZIMRA ................................................................................................ 190 ZIMRA Structure ..................................................................................................... 190

CONCLUSION ............................................................................................................... 191


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And what the land is, whether it

be fat, or lean, whether there be

wood therein, or not. And be you

of good courage, and bring of the

fruit of the land. Now the time

was the time of the first ripe

grapes. [Numbers 13:20]

INTRODUCTION

1. Mr Speaker Sir, in Article 3 of the Global Political Agreement,

the Parties to the same agreed to give priority to the

restoration of economic stabilisation and growth in Zimbabwe

and committed to work together on a fully and comprehensive

economic programme aimed at addressing economic

production, food security, poverty and unemployment, and the

challenges of inflation and high exchange rates.

2. It is exactly 668 days and 5 hours since the Global Political

Agreement (GPA) was signed on 15 September 2010. The

critical question that arises is whether or not the Inclusive

Government has implemented what was agreed under Article

3:1 of the GPA.

3. The 2010 Mid-Year Fiscal Policy Review seeks to update

Honourable Members on the 2009 outturn as well as fiscal and

economic developments to June 2010, that way, Mr Speaker


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Sir, providing an assessment of economic performance under

the Inclusive Government over the past seventeen months.

4. The Review also proposes the necessary policy interventionsand other measures for the remaining half of 2010, critical for

the economy to remain on course towards realising our set

targets outlined in our Three Year Macro-economic Policy and

Budget Framework for 2010 2012.

5. Honourable Speaker Sir, I need to make it very clear that the

current Mid Term Review is only but a review and not a

supplementary Budget.

6. I seek no additional charges to the Consolidated Revenue Fund

as defined by Section 103 of the Constitution. The 2010

Budget will remain the same, with revenue and expenditures of

US$2.25 billion.

7. However, adjustments and re-alignments in certain Votes will

have to be made, largely as a result of the underperformance

of the Vote of Credit.

Recalling STERP I & II

8. Honourable Members will recall that a month after its

inauguration on 16 February 2009, the Inclusive Government

launched the Short Term Emergency Recovery Programme


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(STERP) as a critical tool in addressing the fundamental

economic challenges and dis-equilibriums affecting and

arresting the country.

9. STERP provided an ideological campus for navigation towards

the rebuilding of the Zimbabwean economy through the

following fundamental matrices:

Creation of a responsive, yet efficient State that uses

redistributive mechanisms, social rights, while maintaining

social development;

Building of a strong economy, based on market principles

with careful State interventions to advance social

protection and justice; and

Establishment of a participatory political democracy

through the new people driven Constitution and the

rebuilding of fundamental democratic institutions in our

country.

10. Mr Speaker Sir, on 23 December 2009, STERP was succeeded

by the Three Year Macro-Economic Policy and Budget

Framework 2010 2012 (STERP II).


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11. The Vision of this Framework was to build a dynamic, stable

and sustainable developmental economy whose objectives as

read together with the 2010 National Budget were:

Sustaining macro-economic stabilisation and consolidating

STERP;

Support for rapid growth and employment creation; Ensuring food security; Restoring basic services; Encouraging public and private investment; Promoting regional integration; Restoring basic freedoms; and Restoring international relations.

12. Furthermore, it was recognised right from the onset that

achieving the above objectives would require unequivocal and

unmitigated commitment to a National Vision that was above

narrow parochial political interests and recognised the

immutability of a minimum bundle of certain invaluable rights.

13. In short, the development of our own Jeffersonian Principles on

agreed inalienable rights a counter cyclical political vision that

would remain intact irrespective of changes in the political

landscape.


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14. Apart from the National Vision, it was recognised that the rule

of law, restoration of basic freedoms and democracy were a

necessary precondition for sustained economic recovery.

15. Therefore, the implementation of agreed positions in the Global

Political Agreement around issues of the rule of law, the

Constitution, security of persons and prevention of violence,

freedom of expression and communication, among other things

was imperative.

16. Over and above this, it was recognised that fiscal discipline was

critical for stabilising the economy and, hence, the adopted

principle of living within our means. Therefore, the Revised

2009 Budget of 17 March 2009 made it clear that What we

Gather is what we Eat .

17. The net effect of the above was the attainment of substantialstabilisation of the economy in 2009, with huge gains

particularly in the following areas:

Inflation reduction; Improved capacity utilisation in productive sectors of

agriculture, mining and manufacturing, from below 10%to around 30% to 50%;

Removal of price distortions in both foreign exchange and

goods markets;


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Resuscitation of financial sector services; Some improvement in public service delivery, particularly

in the areas of water and sanitation, transport, health and

education sectors; Improvement in social protection programmes for

vulnerable groups;

Overall business confidence building; Policy consistency and predictability on key policy

fundamentals;

The enactment of key legislation dealing with credibility

and accountability over the use and management of

public resources; and

Re-engagement with the international community.

18. Mr Speaker Sir, the above economic gains achieved in 2009 are

under threat of being eroded owing to a number of challenges

during the first half of 2010.

19. Shortcomings in the economy have included the threat to

macro-economic stabilisation through the resurgence of

inflation. Over and above this, has been the lack of capital,

modest recovery in capacity utilisation, and more importantly, ageneral drop in hope and confidence in the economy.


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20. It is imperative that a new paradigm be adopted during the

second half of 2010. In our view we have to go back to basics

and abandon the business as usual mentality. This

economy requires Regeneration, Revival and Refocusing .

These three Rs, should underpin the basis of a frontloaded

growth in the second half of the year.

21. In Regenerating, Reviving and Refocusing this economy

we have to draw the line and adopt a business unusual

stance.

22. In drawing this line, this Review will thus:

a. Refocus the economy back to the 2009 trajectory of

discipline and stabilisation.

b. Re-energise and kick-start the economy towards real

growth and real delivery.

c. Re-targeting Government expenditure so that pro-poor

social spending targets on health, education and welfare

are met.

d. Relay the foundation of a common vision on the

developmental State.

GLOBAL ECONOMIC DEVELOPMENTS


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23. The global economy is beginning to show some signs of

emergence from the devastating economic crisis of 2008/2009,

against the background of global financial cooperation, extra-

ordinary fiscal stimulus policy interventions, capital injections

into failing financial institutions, lowering of borrowing costs, as

well as greater labour markets flexibility.

24. However, no sooner was Africa and the rest of the world

beginning to emerge from the global economic crisis was the

world hit by the Euro zone debt crisis, initially centred around

the Greek economy. Concerns also remain over the

performances of other economies, including Spain and

Portugal.

25. The responses of the Euro zone countries to the new debt crisis

have been dramatic and decisive. In Greece for instance, an

Emergency Economic Protection Act was passed on 28 March

2010, generating savings of 4.8 billion that benefitted from

public wage reductions.

26. The slashing of expenditure was met by corresponding

increases in taxes. VAT for instance was increased to 23% andthere was a 10% rise in luxury taxes.

27. In the United Kingdom, the new Government unveiled an

emergency austerity Budget on 22 June 2010. Its main thrust


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was to address structural budget deficits through cuts in budget

spending, anticipated to amount to savings of 6.3% of GDP by

2014 2015. To raise revenue, VAT was also reviewed from

17.5% to 20%, while capital gains tax rose to 28%.

28. Globally, against the background of the anticipated recovery,

world economic growth is projected at a little over 4% in 2010

from an estimated under 1% in 2009.

29. Emerging and developing economies are expected to register

growth of over 6% in 2010, up from under 2.5% in 2009.

Remarkable growth is particularly expected from China and

India with an over 8% growth projection.


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30. If sustained, global economic recovery should underpin

anticipated improved growth of over 4.5% in 2010 for Sub

Saharan Africa. This would also be on the back of continued

implementation of strong fiscal and monetary policies. Last

year, at the height of the global financial crisis, growth for the

sub-region was an estimated 2%.

Inflation

31. In the outlook, inflation which had declined in 2009 to marginallevels in developed economies and to around 5% in emerging

and developing economies, is projected to rise respectively to

around 1.5% and 6% in 2010. In 2011, decline in inflation is

anticipated.


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Commodity Prices

32. Increased world economic activity will auger well for

international commodity prices, improving export revenuerealisations and growth prospects for commodity exporting

countries.

33. However, vulnerabilities to exogenous shocks remain in

emerging and developing economies.

Metals and Minerals

34. So far, however, gold prices, which averaged US$973 per

ounce in 2009 have been increasing, from US$1 113 in March

2010 to US$1 200 by June.

35. Similarly, platinum prices which had declined from US$1 566.5

per ounce in 2008 to US$1 153.8 in 2009 have been on a

recovery path, reaching US$1 530 in June 2010.


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36. Nickel prices, which had slumped from US$21 000 per tonne in

2008 to US$10 471 in the first quarter of 2009, recovered

remarkably to US$26 031 by the first quarter of 2010.

Crude Oil


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37. On the negative, oil prices have since been rising in tandem

with the recovery in the global economy to levels averaging

US$78.71 per barrel by the first quarter of 2010.

38. Crude oil prices had succumbed to the effects of the global

economic crisis, falling sharply from US$96.99 per barrel in

2008 to US$44.11 by March 2009.

Agricultural Commodities

39. On the agricultural front, cotton prices which had dropped in

2009 to US138.2 cents per kg from US157.4 cents, also

recovered in 2010, averaging US198.6 cents by May.


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40. This compares unfavourably with an average of US60 cents and

US42 cents offered to local cotton growers in 2009 and 2010,

respectively.

41. International average prices for tobacco improved from

US$4.24 per kg in 2009 to US$4.47 in February 2010, before

easing to US$4.39 in April.


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42. Grain commodity prices, however, remain depressed with the

international price of maize falling sharply from US$223.1 per

tonne in 2008 to stabilise at around US$165 in 2009 and 2010.

43. Similarly, wheat prices have been in decline, reaching US$271.7

per tonne in 2010 from US$300 in 2009 and US$454.6 in 2008.


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Implications for Developing Countries

44. Looking ahead, the sluggish recovery in output associated with

high debt and the state of distress of financial markets in most

advanced economies poses major concerns for developing

countries, including Zimbabwe.

45. In this regard, challenges and competition among developing

economies over regaining export markets and attracting critical

investment for sustaining growth will intensify.

46. This makes resolving all the constraints to unlocking new

capital inflows unavoidable. Critical is the finalisation of our

external payment arrears clearance programme, central to

increased access to new financing from potential cooperating

partners and investors.

47. The establishment and maintenance of a conducive investment

environment, underpinned by honouring of Bilateral Investment

Promotion and Protection Agreements will also be necessary.

48. Among others, this will encompass further strengthening of

macro-economic stability, and sustenance of the liberalised

business environment ushered by STERP, free of unnecessary

restrictions and distortions.


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SECTORAL DEVELOPMENTS

49. The positive turnaround in economic activity experienced

during 2009, which saw overall economic growth for the year

revised upwards from 3.7% to 5.7% continued to face

challenges during the first half of 2010.

50. Major challenges undermining robust growth of the productive

sectors relate to the absence of medium to long term financing.

This has constrained critical investment in infrastructure

rehabilitation and the maintenance and upgrading of such key

enablers as sustainable supply of power generation capacity.

51. Furthermore, companies have not been able to realise

meaningful lines of credit to re-tool and access raw materials

for the restoration and improvement of production capacityutilisation, vital for lowering unit production costs. The

available limited facilities have remained short-term and at high

cost.

52. Our original growth projection for 2010 was 7%. However,

fragile prospects for recovery in economic performance demand

a reduction of this figure. We have, thus, revised our growth

projection for 2010 to 5.4%.


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53. The revised projection figure of 5.4% should not be taken for

granted. A business as usual mentality will certainly

guarantee a further downward revision.

54. Indicators of positive performance in the first half of 2010 have

included growth in VAT revenue and output in agriculture

(18.8%), as well as projected growth in mining (31%),

manufacturing (4.5%), distribution, hotels and restaurants

(3.5%) and transport and communication (3%).

Sectoral Growth RatesSector 2008

ActualRevised

2009 Est.Original

2010 Proj.

2010(Revised

Proj.) Agriculture -39.3% 14.9% 10% 18.8%

Manufacturing -33.4% 10.2% 10% 4.5%

Mining -17.1% 8.5% 40% 31%

Tourism 2.8 % 6.5% 10% 3.5%Electricity Gas

and Water

-36.5% 1.9% 3.4% -1.8%

Construction -8.5% 2.1% 3.2% 1.5%

Finance and

Insurance

-27.9% 4.5% 5.5% 2.0%

Real Estate -36.4% 2.0% 2.2% 1.5%

Transport andCommunication

5.4% 2.2% 4% 3%

Public

Administration

0% 2.0% 3% 2.0%

Overall GDP -14.8% 5.7% 7% 5.4%


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Source: CSO, Ministry of Finance & the Reserve Bank

Agriculture

55. Agricultural growth of 18.8% in 2010 is up on last years

14.9%. This is mainly driven by tobacco, up 67.3% from 55.6

million kgs in 2009 to 93 million kgs; maize, up 3% from 1.24

million tonnes to 1.33 million tonnes; and beef up 2% from 93

000 tonnes to 95 000 tonnes.

56. Sustaining viable tobacco pricing in the liberalised marketing

environment should offer scope for increased hectarage under

tobacco production over the coming seasons.

57. In the current season, some 86.5 million kgs of tobacco have

been sold at an average price of US$2.98 per kg by end June

2010. This compares with last years auction floor sales of 55.6

million kgs at an average price of US$3.01 per kg during the

same period.

58. Horticulture production in 2010 is also projected to register

growth, rising to 43 000 tonnes against last years 35 000

tonnes. There is still much more investment to be undertaken

before production levels rise to levels above 60 000 tonnes

experienced previously.


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59. Depressed cotton prices and financing constraints in 2009

undermined cotton production which decreased from 246 000

tonnes in 2009 to 172 000 tonnes in 2010.

60. However, following interventions by Government and

subsequent review by cotton merchants, the price for cotton

increased to US45 cents per kg this year, up from US30 cents

per kg in 2009.

61. Sugar production during 2010 is also projected to decline belowlast years levels. In 2009, sugar production was 286 000

tonnes. This year, an estimated 250 000 tonnes of sugar is

anticipated.

Agricultural Production, Main Products (000 tons) 2005 2006 2007 2008 2009 2010

Tobacco 74 55 80 56 55 93

Maize 750 1,485 953 575 1,240 1,300

Beef 90 90 95 90 93 95

Cotton 198 260 235 226 247 172

Sugar 430 447 442 298 286 250

Horticulture 60 64 66 60 35 43Source: Ministry of Agriculture

Cereal Production


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62. Recovery in cereal production, including maize, during the

2009/2010 agricultural season benefitted from improved

support, timely availability of inputs through the open market

as well as the liberalised marketing environment, which

enhanced viability of farming and boosted overall confidence.

63. The upturn in maize production when taken together with other

grains resulted in an increase in cereal production from 1.51

million tonnes to 1.52 million tonnes against a national

requirement of 1.95 million tonnes, giving a cereal deficit of

432 540 tonnes.

64. The 3% increase in maize production over last seasons

production was in spite of poor performance in the southern

provinces of the country.

65. Improvement in Government support extended to farmers saw

a total of US$227.4 million or 25.9% of total Budget

expenditure mobilised in support of cereal production and local

grain purchase. Of this, US$197.1 million was availed in

support of A2 and vulnerable A1 and communal farmers.

Commercial Credit Scheme


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66. Of the financial support to A2 farmers, Government, in

conjunction with commercial banks secured credit facilities

totalling US$82.9 million for inputs through the GMB.

67. Over-procurement, however, meant that out of the inputs

secured, farmers only collected inputs worth US$59.5 million.

This has left a carry-over stock of inputs valued at US$23.4

million being held at GMB depots comprising 3 685 tonnes of

fertilizer and 8 228 tonnes of seed.

Crop Input Pack Scheme

68. With regard to A1 and communal farmers, Government

financial support largely related to provision of subsidised

fertilizer inputs. Under this scheme, a 50kg bag of AN fertilizer

was sold at US$7 against the market price of US$28.

69. Overall, farmers accessed 32 843 tonnes of top-dressing

fertilizers which Government subsidised to the tune of US$40

million.

70. Government support for agriculture was complemented by

resources amounting to US$74 million mobilised by cooperating

partners under the coordination of the Food and Agriculture

Organisation.


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71. These supported over 738 000 vulnerable households under the

input pack scheme, where each household received two 50kg

bags of fertilizer, one AN and one compound D, as well as 10kg

of maize seed.

72. The combined impact of Government and cooperating partner

support for small holder farmers boosted communal farmers

maize output to 966 755 tonnes in 2009/2010. In the previous

season, their output amounted to 902 158 tonnes.

Winter Wheat

73. Notwithstanding Governments US$20 million seeds and

fertilizer inputs support for preparations for the winter wheat

crop, uncertainty in the supply of electricity throughout the

crop cycle has seen an increasing number of farmers reluctantto invest in wheat production.

74. By the end of the planting season on 31 May 2010, only 10 000

ha had been put under wheat, against the targeted 30 000 ha.

75.

Consequently the uptake on the inputs secured by Governmentstood at 84 tonnes for seed and 2 015 tonnes of compound D.

This was against available stocks of 720 tonnes for seed and 14

415 tonnes for compound D as at 11 June 2010.


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Mining

76. In mining, productivity in the sector continues to be hamstrung

by erratic power supply. This has meant that mining houseshave not been able to sustain increased production even in

cases where they have had limited access to lines of credit in

support of recapitalisation.

77. As a result, realised output during the first half of 2010 has

prompted downwards revision to overall mining sector growthfrom 40% to 31% in 2010. Most of this growth is underpinned

by continued bullish mineral and metal prices.

Mineral Production

2005 2006 2007 2008 2009 2010Jan Feb Mar Apr

Gold (t) 13.45 10.80 6.80 3.07 4.97 0.61 0.57 0.76 0.52

Nickel (t) 9.47 9.20 9.25 6.35 4.86 0.55 0.48 0.53 -

Coal (t) 3,468.94 2,200.00 2,600.00 1,701.60 1,606.32 193.01 194.18 158.16 140.00 Asbestos () 123.15 110.00 115.00 11.49 5.50 0.86 0.63 0.36 0.10

Chrome (t) 831.88 690.00 693.45 442.58 201.00 0.04 0.04 0.04 0.04

Platinum (t) 4.56 5.19 5.30 5.50 6.86 0.79 0.68 0.75 -

Source: Ministry of Mines, Chamber of Mines

Gold Production


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Chrome Production

Nickel Production


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Platinum Production

Coal Production


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Asbestos Production

Gold and Platinum Production: 2005 - 2009


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Nickel Production: 2005 - 2009

Chrome Production: 2005 - 2009


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Coal Production: 2005 - 2009

Asbestos Production: 2005 - 2009


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Shipments Contribution by Minerals for the first half of 2010

Diamonds


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78. A total of over 4.4 million carats were produced since the

beginning of the year to May 2010 from the countrys four

diamond mines, which includes Mbada, Canadile, Murowa and

River Ranch.

79. Currently, there is no marketing of the countrys diamonds as a

result of issues related to the Kimberly Process Certification

Scheme, a situation which has also affected traditional

producers - Murowa and River Ranch mines, respectively.

Manufacturing

80. The momentum of recovery in the manufacturing sector has

not been sustained during the first half of 2010 as reflected by

sluggish gains in average capacity utilisation levels still hovering

around 35-40%.

81. Notable exceptions have, however, been noted in the food and

beverages sub-sector where major gains in capacity utilisation

have left some firms operating at about 70%.

82.

In line with the experiences of the other production sectors,manufacturing continues to face major power outages, over

and above absence of meaningful lines of credit in support of

improved capacity utilisation.


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83. This has sustained production costs at relatively high levels,

with negative implications on the general competitiveness of

domestic manufactured goods against imports from the region

and beyond.

Food, Beverages & Tobacco

84. The food and beverages sub-sector has witnessed notable

growth following liberalisation and the introduction of multiple

currencies in 2009. This allowed increased investment in newplant and equipment, particularly in the beverages sector where

capacity utilisation increased beyond the initial STERP targets.

85. In line with the other sectors, challenges relate to erratic power

and water supplies, coupled with shortages of working capital

resources.

Cotton, Clothing & Textiles

86. Capacity utilisation in the cotton, clothing and textiles sector

during the first half of 2010 remains below potential production

levels of 700 000 tonnes.

87. During this period, the ginning industry managed to produce

only 240 000 tonnes of lint, also against cotton farmer viability

challenges.


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88. Other challenges facing clothing and garment manufacturing

include lack of investment, which is constraining industry

efforts to modernise plant and adopt newer and more efficient

technologies. In the absence of this, competition over the

domestic as well as export markets will intensify.

Chemicals & Pharmaceuticals

89. The local pharmaceutical manufacturing industry has thecapacity to supply more than 122 products, which translates to

47% of the countrys essential drugs requirements.

90. However, primarily owing to lack of working capital and skills

shortages, the industry operated at average capacity of below

25% during the first half of 2010.

Metal Industry

91. The metals sub-sector provides strong backward and forward

linkages to sectors such as mining, construction, agriculture,

machinery, and transport. The sub-sector is operating at an

average capacity of below 40%.

92. Challenges associated with Zisco Steel, previously the countrys

major steel producer, have further exacerbated the domestic


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metals sub-sector. Zisco accounted for 80% of raw materials

required in the production of steel and other related products.

Leather Industry

93. The leather and leather products industry has capacity to

produce a wide range of products such as semi-produced

leathers, finished leathers, leather clothing, travel bags and

cases, footwear and accessories.

94. Realising this potential, and raise capacity utilisation above

40%, will require major investments to overcome shortage of

working capital and antiquated machinery.

Fertilizer

95. The fertilizer and chemical industry has a strong impact on both

agriculture and manufacturing sector performance. Currently,

about 32% of fertilizer supplies are produced locally, while the

balance are imports.

96. Capacity utilisation currently stands at 40% against the 19%

recorded in 2009. This is expected to increase to around 45%

by the end of 2010, mainly driven by refurbishment of plant at

Sable Chemicals, which will help boost fertilizer output from 40


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000 tonnes produced in 2009 to 100 000 tonnes by the end of

2010.

Tourism

97. In the first half of 2010 the distribution, hotels and restaurants

sector which grew by an estimated 6.5% in 2009 showed

further positive signs of growth, recording increased tourist

arrivals, average room occupancy (37%) and overall earnings.

98. Arrivals to March 2010 were up 0.7% to 319 788 over the first

quarter of 2009. To year end, tourist arrivals are projected to

remain upward against the background of sustained macro-

economic and social stability.

99.

The market share for the overseas market stood at 12% in firstquarter of 2010. Europe remains the major contributor to the

overseas market arrivals in first quarter of 2010 having

contributed 42% of the overseas market despite a 43%

decrease in tourist arrivals from the region. America has the

second largest overseas market share (22%) after Europe.

100. Africa which is the countrys traditional main contributor to

overall tourist arrivals, recorded an 11% increase in tourist

arrivals from 254 911 in the first quarter of 2009 to 282 528 in


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the first quarter of 2010, with South Africa alone accounting for

76%.

2006-2010 First Quarter Tourist Arrivals


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101. Overally, the tourism sector is expected to grow by 3.5%

during the year 2010.

Construction

102. The construction industry, also a barometer for underlying

business developments, has also been showing signs of

resuscitation during the first half of 2010. In this regard,

increased demand for such building materials as cement and

bricks is being experienced.

103. Cement production is, therefore, projected to soar up by 140%

to about 555 000 tonnes in 2010. Similarly, suppliers of bricks

and other building materials have also been experiencing gains

in production, notwithstanding production challenges related to

erratic power supplies and unavailable lines of credit.

Consumption & Investment

104. The adverse effects of accelerating inflation on real incomes

and tighter liquidity conditions slowed down both Government

and private consumption during the first half of the year.

Reflecting this, aggregate consumption during 2010 isprojected to register decline of 2.4%, following a growth of

4.3% in 2009.


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105. Similarly, aggregate investment growth is forecast to also

decelerate to 26.8% in 2010. The slow down in investment is

attributed to inadequate efforts to mobilise domestic savings,

exacerbated by the wait and see attitude of investors linked

to the perceived uncertainties related to the Indigenisation and

Empowerment Regulations.

GDP by Expenditure current prices

GDP Expenditure(Current Prices)

2009 (est) 2010 (proj)

Nominal GDP (US$ mil) 5,220 5,517% Change 5.7 5.4

(% Change) Final Consumption 4.3 -2.4

Private Consumption -4.4 -5.5Government Consumption 618.9 26.8

Total Investment 748.1 25.1Government 216.3 298.2

Exports -7.2 23.7Imports 23.2 5.3

Source: CSO, Ministry of Finance

Inflation

106. Inflationary pressures picked up during the first half of 2010with year-on-year inflation recording 0.7% in January, 1% in

February, 3.5% in March, 4.8% in April 2010 and 6.1% in May

2010.


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Consumer Price Inflation monthly % changes

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

J a n - 0 9

F e b - 0 9 M a

r - 0 9

A p r - 0

9

M a y - 0

9 J u n

- 0 9 J u l

- 0 9 A u

g - 0 9 S e p

- 0 9 O c

t - 0 9 N o

v - 0 9 D e

c - 0 9 J a n

- 1 0 F e b

- 1 0 M a

r - 1 0

A p r - 1

0

M a y - 1

0

Source: CSOCPI annual % chg eop CPI food inflationCPI non food inflation

107. The upward movement in prices of the above items partly

reflects wage increases awarded in the first quarter of the year,

which in turn increased unit costs of domestic production.

Tariff adjustments for public utilities, as well as the

strengthening of the South African rand against the US dollar

also contributed to the price increases.

108. However, during the second quarter of 2010, the exchange rate

between the rand and the US dollar had stabilised.

109. Failure to put a tight lid on the resurgence of domestic inflation

would only serve to reduce the competitiveness of local goods


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in both the domestic and export markets. The impact on our

already income constrained consumers would be further resort

to lower priced imported products, with adverse consequences

for local production and employment.

Price Indexes Tradable and Non-Tradable Good and services

Consumer Price Index Dec 2008 = 100Tradable and Non Tradable Goods and Services

80

82

84

86

88

90

92

9496

98

100

D e c - 0 8

J a n - 0 9

F e b - 0

9

M a r

- 0 9

A p r - 0 9

M a y

- 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

N o v - 0 9

D e c - 0 9

J a n - 1 0

F e b - 1

0

M a r

- 1 0

A p r - 1 0

M a y

- 1 0

Source: Based on CSO CPI data

TradablesNon TradablesAll Items

Financial Sector

110. With regards to the financial sector, the challenges remain the

limited domestic deposit base to gradually improve the capacity

of banks to provide meaningful credit to the private sector.


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Banking Sector Deposits and Loans

Banking Sector Depostis and Loans

(millions US$ and Depostits/Loans ratio)

0.0

0.5

1.0

1.5

2.0

M a r - 0

9 A p r - 0

9

M a y - 0

9 J u n

- 0 9 J u l

- 0 9 A u

g - 0 9 S e p

- 0 9 O c

t - 0 9 N o

v - 0 9 D e

c - 0 9 J a n

- 1 0 F e b

- 1 0 M a

r - 1 0 A p

r - 1 0

Source: RBZ

-

10

20

30

40

50

60

70

Banks Deposits Banks Loans Loans/Depisit Ratio

111. This has meant that although there has been some increase in

bank lending throughout the first half of 2010, most loans

remain short term (90 days or less) with longer-term loans

accounting for less than 3% of the overall deposits. This has

created serious challenges for the provision of longer-term debt

capital thereby, limiting the intermediary role of the financial

sector.

112. Credit costs of as much as above 30% and bank spreads of

around 30% remain high, reflecting high credit risks and the

liquidity crunch in the economy.


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Banking Interest rates on loans and deposits

Banking Interest Rates on Loans and Deposits and Spread(maximum annualized rates charged)

0.05.0

10.015.020.025.030.0

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0

9

N o v - 0 9

D e c - 0 9

J a n - 1 0

F e b - 1 0

M a r - 1

A p r - 1

M a y - 1 0

Source: RBZ Deposit Rates Lending RatesSpread

113. In terms of loans distribution, agriculture, transport and

distribution followed by manufacturing were the biggest

beneficiaries while construction got the least.

Sectoral Distribution of Loans


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S ectoral Dis tribution of L oans

0%

5%

10%

15%20%

25%

30%

M a n u

f a c t u r

i n g

T r a n s

& D i s t

A g r i c

u l t u r e

S e r v i

c e s

I n d i v i d

u a l s

M i n i n

g

C o n s

t r u c t i

o n

O t h e

r

S ectoral Loan D istribution(31 Oc tober2009)S ectoral Loan Dis tribution(31 Dec ember2009)S ectoral Loan Distribution 31 A ril 2010

Zimbabwe Stock Exchange

114. Trading on the Zimbabwe Stock Exchange has largely been low,

mainly due to market illiquidity in the first half of the year.

115. Foreign participation has remained subdued with investments

mainly confined to portfolio restructurings. Corporate results

have also failed to uplift the equity market as most corporates

are still undercapitalised and also suffering from subdued

demand.

116. Of the companies that sought recapitalisation mainly through

rights issues, shareholder support averaged 50% with the

balance being taken over by the underwriters.


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117. The Tables below illustrate trading at the Zimbabwe Stock

Exchange:

Jan Feb March April May JuneIndustrials 156.52 158.07 142.37 139.01 129.40 127.46Minings 209.81 215.03 216.85 167.90 159.28 143.08

Source: Zimbabwe Stock Exchange

118. The industrial index which started the year at a high of 156.52

had dropped to 127.46 by June 2010, whilst the mining index

fell from an opening of 209.8 to 143.08.

119. Similarly, market capitalisation fell from US$3.97 billion in

January 2010 to US$3.19 billion by end of June 2010.

JanUS$ bn

FebUS$ bn

MarUS$ bn

AprUS$ bn

MayUS$ bn

JunUS$ bn

3.97 3.55 3.67 3.49 3.25 3.19Source: Zimbabwe Stock Exchange

120. The poor performance is as a result of investors pulling out

their investments reflecting depressed investors sentiment over

perceived financial risks, especially following gazetting of the

Indigenisation Regulations on March 1.

121. In particular, foreign investors contribution to market turnover

fell from between 40-50% to an average 20% per month.


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Zimbabwe Stock Exchange Indices

Zimbabwe S toc k E xc hang e Indices

0

50100

150200

250300

350

Apr-09

May-09

Jun-09

Jul-09

Aug-09

S ep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%

Industrial Index Mining Index Make rt L iquidity Indicators

External Sector

122. The overall highlights in the external sector are that

developments in the first half of the year point to further

deterioration in the balance of payments to the end of the year

2010. This is against the background of slower recovery of

exports, absence of external financial inflows, and growing

reliance on imports.

123. Total exports for the first four months of 2010 were US$870

million against imports of US$1 544.5 million, resulting in a

trade deficit of US$675 million.

124. Notwithstanding some commodity price gains, notably gold and

platinum, overall deterioration in the terms of trade during the


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first half of 2010 will make it more difficult to finance the trade

and current account deficits.

125. The current account gap is projected to widen further in 2010

to US$1.3 billion as imports rise to a projected US$3.6 billion

for the rest of the year. This is against exports of US$1.9

billion and net private transfers of US$0.6 billion.

126. The current account deficit was largely financed by SDR

allocations and reduction in banks foreign assets.

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

% o

f G D P

2008 2009 2010 2011 2012

Years

Exports, Imports & Current Account Balance (% of GDP)

Exports Imports Current Acc ount Deficit

2009-2010 Monthly Exports and Imports (millions US$) Source : CSO/ZIMSTAT

Note: Imports exclude imports of electricity

Balance of Payments. Trade Account and Financing

Balance of Payments 2005 2006 2007 2008 2009 Est. 2010 Proj.


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(US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil) (US$ Mil)Current Account (excl.officialtransfers) -549 -365 -243 -779 -928 -1326

% GDP -9.7 -6.7 -4.6 -15.7 -17.8 -24

Trade Balance -406 -475 -294 -972 -1622 -1706

Exports fob 1588 1721 1819 1657 1591 1930

% GDP 3.6 3.8 4.4 4.6 5.8 7.2

Imports fob 1994 2196 2113 2630 3213 3636

% GDP 35.2 40.3 40.1 53 61.6 65.9

Non factor services (net) -109 -121 -143 -207 -32 -55

Income (net) -197 -209 -245 -224 -200 -203

Private transfers (net) 163 439 440 625 926 638

Capital Account (Incl. OfficialTransfers) 3 88 166 273 -70 729

Overall balance -208 -286 -323 -725 -1908 -597

Memorandum items:

Gross Official Reserves 61 74 153 76 366 156

Months of imports cover 0.3 0.3 0.7 0.3 1.2 0.5

Source: RBZ

FISCAL DEVELOPMENTS

127. Cumulative tax revenue collections significantly improved in the

first half of the year as a result of an increase in tax revenue

and a slowdown in the growth of current expenditures.

128. Revenues for the year are projected to increase to US$1.75

billion, mostly stemming from increased VAT and PAYE

collections, which in turn reflect improved economic activity as

well as increased collection efforts at ZIMRA.

129. Notwithstanding increased tax revenue collections, the fiscal

position remains fragile. The projected growth of revenue of


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US$300 million falls far short of the projected shortfalls in the

Vote of Credit US$810 million financing of the original 2010

Budget expenditures of US$2.25 billion.

130. Developments during the first half of 2010 confirm that the

Vote of Credit has not performed at all. If not reversed, this

threatens to leave the 2010 Budget as originally outlined in an

unsustainable position.

131. This will simply mean that the Government will not be able tofulfil on some of those programmes it set out to undertake.

Sadly, the bulk of the affected areas are in the key Public

Sector Investment Projects, provision of social services

including health and education.

132. This is precisely why a new paradigm is required. Indeed it is

precisely why Refocusing, Regeneration and Revival is

essential. It cannot be business as usual .

Revenue

133. Whereas Customs Duty and VAT collections on imports

accounted for two thirds of revenue during the first fourmonths of 2009, taxes on income and profits have rebounded

as economic recovery began to take root. Hence, domestic tax

resources now account for two thirds of total revenue.


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134. Cumulative tax revenue collections for the period January-June

2010 amounted to US$930.7 million, against a revised target of

US$830.5 million. VAT, Pay As You Earn (PAYE) and Customs

Duty contributed significantly to total revenue.

Value Added Tax (VAT)

135. VAT contributed US$349.7 million or 37.6% of total revenue

against a target of US$320.9 million. VAT on domestic and

imported goods and services accounted for US$196.7 million

and US$153.1 million, respectively.

Customs Duty


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positive performance is mainly on account of increased

estimated profit margins emanating from improved capacity

utilisation.

Excise Duty

140. Excise duty collections amounted to US$76.3 million against a

revised target of US$100.6 million. The bulk of excise duty was

collected from fuel and beer, which contributed US$40.8 million

and US$16.7 million, respectively.

Mining Revenue

141. Mr Speaker Sir, the contribution of mining to Budget revenue

during the first half of the year remained low. This is indicative

of key structural deficiencies in our taxation of mining sector

activity.

142. Hence, while it is fact that Zimbabwe has a diverse spread of

exploitable mineral resources, it is fact that the contribution of

this sector to the fiscus has been minimal.

Other Taxes

143. Revenue collections from other taxes for the period under

review amounted to US$54.9 million or 5.9% of total revenue.


58/192


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capital development projects. The balance of US$32.4 million

was spent under the ZIMRA grant.

148. The amount attributed to capital expenditure falls far short of the requirements, if we are to address the infrastructure

challenges facing this economy.

149. First half expenditure performance is shown on the pie chart

below.

150. The current expenditure structure of the Budget where 82% of

expenditure is recurrent underpins a complete absence of fiscal

space and is unsustainable. This is precisely why this Review

proposes a Refocus for the second half of the year.


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Recurrent Expenditures

151. The bulk of the current expenditures of US$720.5 million for

the six months January-June 2010 were on employment costsinclusive of pension, goods and services and transfers to grant

aided institutions as detailed below.

152. The positive revenue performance during the past six months

should ordinarily have allowed us more flexibility in addressing

other critical expenditure issues affecting the country,particularly infrastructure. However, this was not possible as

some budget items, particularly the wage bill continued to

crowd out social and development expenditures.

Employment Costs

153. Employment costs comprised the civil service wage bill,

pensions and remuneration to grant aided institutions. These

amounted to US$493.2 million against total Government

revenue collections of US$930.7 million.

154. As a result of the wage bill absorbing a disproportionate shareof revenue, fiscal space for non-wage operational expenditures

as well as critical capital expenditures urgently needed for

rehabilitation and infrastructure development was reduced.


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Civil Service Wage Bill

155. The graph below illustrates developments and fluctuations on

the payroll and wage bill for the civil service.


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62

156. The wage bill has been steadily growing over the last six

months, from an average of US$50 million over the first two

months, rising to US$55.1 million by June.

157. This outturn is mainly because of a net growth in employment

levels of 19 170, for which the Ministry of Education, Sport, Arts

and Culture is accounting for 15 197 (79%) as illustrated in the

graph below:


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158. The current wage bill levels of around 60% of the total Budget

and 15% of GDP compromises both non-wage operational and

critical capital expenditures. Regional best practices indicate

levels of 30% of the total Budget and 10% of GDP.

Operations and Maintenance

159. To date, expenditure on Operations and Maintenance stands at

US$126.1 million against a target of US$120 million. The

expenditures are comprised as follows: rentals and vehicles and

other hire services (US$31.6 million), foreign travel (US$13.1

million), Ministries programme expenses (US$35.2 million),

maintenance of buildings and equipment (US$14.3 million),

domestic travel (US$4.6 million) and other operational

expenses (US$27.3 million) as indicated in the graph below.


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Payments to Service Providers

160. The 2010 Budget Statement to Parliament reaffirmed

Governments commitment to clear all outstanding payments to

service providers in such areas as telecommunication, vehiclehire, office accommodation, water and other utilities. These

arrears stood at US$46 million as at January 2010. We have

managed to pay US$18 million so far. Notwithstanding this

payment, our arrear position as at June 2010 stands at US$58

million.

Foreign Travel


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161. Expenditure on foreign travel declined significantly to 10% of

operational expenditure in the period up to June 2010. This is

comparable to a share of 24% for the same period in 2009.

162. It remains essential that we tighten control on travel expenses

given the need to free resources for other critical service

delivery oriented expenditures.

Foreign Missions

163. Support to Foreign missions in the first half of 2010 amounted

to US$12 million. Notwithstanding this expenditure level,

Government has not made any progress in halting the

accumulation of arrears.

Social Service Delivery

164. Whilst resources at the disposal of Government remain limited,

notable investments have been made in the health sector to

reverse decline suffered over a number of years.

165. To date, nine hospitals, namely Harare, Mpilo, Ngomahuru,

Mutare, Ingutsheni, Gweru, Karoi, Masvingo and Gwanda are

already benefiting under the targeted approach. The

intervention by Government has resulted in an improvement in

the availability of drugs, medical equipment, other medical


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supplies, food, linen and improvement in the general ambiance

of the hospitals.

166. As resources become available more hospitals will be targeted.

167. In the education sector, support amounting to US$8 million has

been received targeting the BEAM programme and

procurement of textbooks.

168. The achievements attained in the social sectors would not havebeen possible without the much appreciated support from our

cooperating partners.

Grants and Transfers

169. A total amount of US$29.7 million was expended with respect

to the non-wage operational expenses of grant-aided

institutions as well as payments of contributions to regional and

international organisations.

170. From the US$28.1 million disbursed as operational support to

granted-aided institutions, US$1.9 million supported the

operations of State Universities, local and foreign based

students (US$5.7 million) and the processing and marking of

national examinations by ZIMSEC (US$1.3 million). Health


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institutions, including Mission Hospitals and Parirenyatwa Group

of Hospitals received US$4.3 million.

171. The Central Statistical Office received US$0.5 million to financethe conduct of the field mapping exercise critical for the holding

of the 2012 Population Census.

Capital Expenditures

172. Capital expenditures amounted to US$123.7 million as at end of

June, inclusive of US$20.9 million under the Vote of Credit.

173. The total resources spent on total capital expenditure to date is

14% which is a marked improvement from the 4.5% spent in

2009. The fact of the matter is that there has to be a Refocus

of expenditures to achieve sustainable levels of capital

expenditure given the state of infrastructure in Zimbabwe. It

cannot be Business as Usual .

Energy

174. The focus of Budget intervention in the power sector during the

first half of 2010 has been to reverse decline in domestic

generation capacity particularly at Hwange Power Station.


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Hwange Power Station

175. Government has availed US$10 million for the procurement of

critical spares and plant items. This intervention will alsoenable the ZPC to maintain the safety of the Ash Dam.

176. The above amount falls short of the US$125 million required at

Hwange Power Station in order to increase production from the

current 300 MW to 780 MW as well as achieve reliability of the

plant.

177. Most of the plant equipment is unreliable resulting in irregular

generation and supply of electricity to the economy. Whilst the

plant requires regular maintenance, it has not been possible

over the years to maintain the plant as per the prescribed

frequencies largely due to lack of resources.

178. Major areas such as coal handling facilities, boilers, water

pumps, auxiliary plant, etc all require major rehabilitation to

improve the performance of the plant.

Kariba Power Station

179. Kariba Power Station, which currently produces 750 megawatts

of power, remains the only reliable source of power to the

country. To ensure continued production and reliability of the


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plant, an amount of US$14 million is required for refurbishment

and rehabilitation of plant and equipment.

180. Equally there are challenges with regards to the transmission

and distribution networks that have to be addressed with

urgency.

Transport

181. An amount of US$33.4 million was disbursed for road

dualisation and bridge construction (US$10.3 million) as well as

the railway track infrastructure (US$5 million) and upgrading of

airports (US$18.1 million).

Road Dualisation

182. Work is already underway to complete the dualisation of

Harare-Masvingo and Harare-Gweru road including construction

of Manyame and Mukuvisi bridges.

Airports Infrastructure

183. Resources amounting to US$18.1 million have also been

provided for the rehabilitation of taxiway at Harare

International Airport and completion of J.M Nkomo Airport


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which is due to be opened before the end of the year. I am

aware that CAAZ had requested resources for the construction

of the car park at J.M Nkomo Airport. Such a project is ideal

for public private partnership arrangement, CAAZ, therefore,

should start engaging the private sector in this regard.

Railway Infrastructure

184. With regards to railway infrastructure, focus has been on the

rehabilitation of track infrastructure as well as signaling, to

improve communication and reduce accidents along the line.

Road Maintenance

185. Large requirements in support of road maintenance have

necessitated the introduction of toll gate fees to complement

the limited available Budget resources, for which an amount of

US$1.1 million was availed from the fiscus towards re-grading

of 23 roads of 1 121 km during the first half of the year.

186. The introduction of toll fees has provided additional resources

for the maintenance and rehabilitation of our road network which spans about 90 000 kilometres.

187. For the first five months of this year, ZINARA has raised

US$23.2 million from toll and road access fees. Of this amount,


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US$15 million has already been disbursed to the road

authorities for the maintenance of our road network as follows:

ROAD AUTHORITY DISBURSEMENTS TOJUNE 2010

Urban Councils 200,571Department of Roads 4,984,251DDF 1,193,000Rural District Councilsow

8,330,139

Beitbridge 32,534 Bikita 26,179 Bindura 2,590,000 Chamunika 510,000 Chimanimani 54,869 Chipinge 46,147 Chivi 50,321 Gokwe North 28,293 Guruve 10,000 Gwanda 52,079

Hwange 65,659 Karoi 24,267 Kusile 37,983 Makonde 46,049 Matopo 38,575 Mazowe 190,000 Mberengwa 42,248 Mhondoro-Ngezi 1,830,000 Mudzi 25,754

Mutare 65,568 Mutoko 56,569 Muzarabani 27,319 Mwenezi 59,841 Nkayi 53,000 Nyaminyami 30,315


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Nyanga 46,362 Pfura 137,655 UMP 23,632 Zaka 24,112

Zibagwe 34,000 Zvimba 2,070,809

GRAND TOTAL 14,707,961

Water and Sanitation

188. Budget interventions in the water and sanitation sector during

the first half of 2010 remained focused at supporting therestoration of minimum adequate services. This is against the

background of the cholera outbreak of 2008 which brought to

the fore the problems afflicting the sector.

189. In this regard, Government has called upon local authorities to

play a more meaningful role in the restoration of the water andsanitation infrastructure by dedicating a percentage of the

revenue collected from water and sewerage charges for re-

investment.

190. Government has already availed US$7 million for the

construction of the Mtshabezi pipeline. Furthermore, resourcesfor the rehabilitation of water and sewage infrastructure have

been provided to Bulawayo City Council (US$6.4 million),

Marondera Town Council (US$2.9 million), and Mut

Documents

Mid Fiscal Review 2010