Zimbabwe’s budget is in crisis

2012-05-26 09:06

Underperforming diamond revenue means tough days ahead

Zimbabwe’s $4 billion (R34?billion) budget set for this year has been thrown off the rails

after revenue from the country’s Marange diamond fields, meant to prop up the

Treasury, fell short of expectations.

Diamond revenue had been earmarked to contribute $600 million to

the budget, initially set at $3.4 billion by

Tendai Biti, the finance minister, but scaled up to $4?billion after assurances

from the five mining companies licensed to operate in Marange that they would

chip in with an additional $600 million.


Instead, diamond revenue has not been forthcoming, amid renewed

concerns from Biti, who fired a caveat during a recent state of the economy

address that the country must now tighten its belt and brace for tough days

ahead.


Between January and March, the total revenue collected by the state

for the first quarter was $771 million compared with a target of

$870?million.


In that period, diamond revenue amounted to only $30.4 million,

against a set target of $122 million.


The significant budget shortfall has

been blamed on the “underperformance” of diamond revenue.


“The drying up of diamond revenue, subdued crop harvests, a rise in

fuel prices and rentals will have an adverse effect on this year’s GDP

projections,” said Biti.


“It’s foreseeable that major projections will be revised

downwards,” he added.


Zimbabwe had forecast a GDP growth rate of 9.4% this year, but Tony

Hawkins, an economics professor at the University of Zimbabwe, said it was

likely to dip given the Treasury’s low revenue streams to something “more

realistic” at about 9%.


Political observers, on the other hand, have expressed little

surprise over the haggling for diamond revenue, given that President Robert

Mugabe’s Zanu-PF enjoys domination of the minefields.


Political analyst Charles Mangongera said: “It’s unheard of that

the exchequer of the Treasury does not have control over the flow of money from

a key sector such as diamonds.”


Biti linked his budget dilemma to a

“parallel government” being financed from diamond revenue.


“There are challenges of opaqueness. As the Treasury, we fear there

may be a parallel government in respect of where the revenue is going and not

coming to the Treasury. This economy needs every resource it can get, including

diamond revenue,” he said.


The Zanu-PF-linked Mines and Mining Development minister, Obert

Mpofu, enjoys the sole discretion of recommending to Mugabe – who alone approves

diamond mining rights – all prospective mining partners.


Mpofu himself is embroiled in a $2 billion fraud case in which he

is alleged to have solicited a $10 million bribe from an ex-diamond mining

company in the Marange area, Canadile Miners.


Now a proposed law, the Diamond Policy, which Cabinet will

deliberate next week, is expected to clip Mpofu’s wings and enable the Treasury

to have oversight of diamond production at every stage.


“The draft Diamond Policy states there shall be access to diamond

trade and financial records of all firms in diamond activities,” said Biti.


The law is expected to circumvent the activities of firms that

dodge remitting revenue to the state, as in the recent case of the Chinese-owned

Anjin, which although being the second-largest producer of diamonds (at

$73?million from Marange) failed to remit a “single cent” to the Treasury.


The opposition Movement for Democratic Change, which controls the

Treasury, is feeling the heat over low diamond revenue, especially from civil

servants who have become militant in their demand for an increases.


Civil servants earn monthly salaries of $250.

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