Cablegate: 2004 Budget Was Nonevent

This record is a partial extract of the original cable. The full text of the original cable is not available.

241156Z Nov 03




E. O. 12958: N/A
SUBJECT: 2004 budget was nonevent

1. Summary: Consider two dissonant facets of last
Thursday's budget announcement-

a) The Robert Mugabe government projected this year's
economic growth at minus-13.2 percent, ensuring Zimbabwe
remains the planet's worst performing peacetime economy.

b) It proposed no significant new initiatives or policy

The budget, descriptive rather than prescriptive, wears
the insignia of entrenched bureaucratic paralysis.
Neither moderates nor hardliners were able to impose
their will on the process. The heat of battle has proven
more than Herbert Murerwa, Zimbabwe's timid finance
minister, could bear. He gleefully ceded policymaking
authority to incoming Reserve Bank Governor Gideon Gono,
the economy's new point man. End Summary.

Issues Skirted
2. Most of the speech is too mundane to cite (even in an
economic reporting cable). The GOZ mostly adjusted
revenue for inflation, raising the tax brackets and most
smaller taxes about 10-fold, as well as converting a
sales to value-added tax. It might be more instructive
to look instead at the main issues the budget skirted:

- Devaluation. A low official currency rate, coupled
with mandatory exchange requirements, has crippled
Zimbabwe's export sector. Moderates pressed
unsuccessfully for devaluation, or a reduction from 50
percent of earnings in the exchange requirement. The
budget did not mention devaluation and, worse still,
suggested the GOZ may introduce exchange controls in
export processing zones, a remaining bastion of
commercial vitality.

- Parallel Market Trading. Hardliners sought a more
aggressive clampdown on parallel market trading;
moderates wanted official approval for these
transactions. Official policy is contradictory. For
instance, the GOZ has agreed that oil companies can sell
fuel at an international market price, but may not
replenish stocks by converting earnings into forex. The
budget also insisted that energy, telecom, grain and
transport parastatals should charge "break-even prices"
for goods and services, but the only means for cost-
recovery would be parallel market pricing. Although the
budget was otherwise silent on parallel market trading,
last Friday's Herald - a hardliner mouthpiece - kept the
pressure up by arguing "when a nation starts pricing its
products and services on parallel market rates, that in
itself is a signal for disaster."

- Land Reform. Hardliners wanted the GOZ to spend
heavily on resettled farms. The budget allocated only
Z$25 billion (US$4 million) toward inputs for small-scale
farmers, triggering a sharp denunciation from the same
Herald editorial.

- Interest Rates. Probably no other GOZ policy is more
responsible for runaway inflation than artificially low
lending rates, currently 400-percent negative.
Hardliners are adamant about keeping them down as a means
to spur productivity. Moderates argue that negative
rates have caused capital flight, speculative borrowing
and, most importantly, GOZ overspending.

3. The milk-toast budget suggests the Finance Ministry is
no longer a player in GOZ economic policymaking, quite a
tumble for a ministry once commandeered by forceful
figures like Bernard Chidzero and Simba Makoni.
Regardless of official title, Gideon Gono is about to
become Central Banker, Finance and Trade Ministers melded
into one.


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