Tendai Biti on the state of the economy
PRESS STATEMENT
STATE OF THE ECONOMY: FEBRUARY 2012
INTRODUCTION
1. This Press Statement is in line with our commitment in the 2012 Budget Statement on the necessity of being transparent and adequately informing the public on economic developments. This Statement, therefore, seeks to update the public on fiscal and other macro-economic developments, focussing on the months of January – February 2012.
ECONOMIC DEVELOPMENTS
Agriculture
Tobacco Sales
2. The 2011/12 Tobacco Selling Season commenced on 15 February 2012, with four participating auction floors – Boka, Tobacco Sales Floors, Zimbabwe Leaf Tobacco and Millennium Auction Floors.
3. For the 2012 buying season, eighteen buyers were licensed and ten buyers are already participating on the auction floors, while others are still to comply with exchange control regulations relating to the buying of the crop.
4. Since the opening of the tobacco auction floors, prices of flue cured tobacco were generally higher compared to the same period last year. This largely reflects higher demand for Zimbabwean tobacco, following reduction in global output by about 200 million kilograms.
5. By end of February 2012, a total of US$28.9 million had been realised from the sale of 8.1 million kgs of the crop at an average price of US$3.61 per kg as shown in the Table below.
Tobacco Sales
Date
Mass sold (kg)
Average Price
(US$/kg) Value (US$)
15/02/2012 177,861 3.6 633,090.9
16/02/2012 605,579 3.7 2,221,840.4
20/02/2012 620,220 3.6 2,205,313.6
21/02/2012 918,806 3.6 3,326,375.9
22/02/2012 630,938 3.4 2,173,034.9
23/02/2012 786,643 3.8 2,958,814.7
24/02/2012 798,540 3.5 2,816,075.1
27/02/2012 767,214 3.8 2,881,181.9
28/02/2012 1,267,285 3.5 4,478,040.2
29/02/2012 857,499 3.6 3,089,303.8
Source: TIMB
Mining
6. In the mining sector, gold output declined in February 2012 by 11.8% from January’s output of 1 053 kgs. Cumulatively, gold output for the months of January and February 2012 has reached 1 981 kgs.
7. Of this output, primary producers accounted for 1 548.8 kgs while small scale miners recorded 432 kgs.
8. The target for the year is 13 000 kgs, implying monthly averages of about 1 100 kgs.
9. The Table below indicates output from primary and small scale producers.
PRIMARY PRODUCERS (P) GOLD DELIVERIES: JANUARY – FEBRUARY 2012(KGS)
January February Cumulative Total
PRIMARY PRODUCERS 812.8357 735.6208 1548.4565
SMALL SCALE MINERS 240.3243 192.3611 432.6854
TOTAL 1053.1600 927.9819 1981.1419
Inflation
10. The year-on-year inflation rate for January 2012 stood at 4.3% shedding 0.6% on the December 2011 rate of 4.9%.
11. The month-on-month inflation rate in January 2012 stood at 0.5%, gaining 0.3% on the December 2011 rate of 0.2%. Of this, month-on-month Food and Non-Alcoholic Beverages inflation stood at 0.41% whilst that for non-Food inflation stood at 0.48%.
12. Major drivers were marginal price increases for fish (3.01%), tobacco (2%), carpets and other floor coverings (1.62%), small tools (1.53%), hospital services (1.18%), maintenance and repair of motor vehicles (1.92%), and educational fees (1.54%).
13. There were, however, price reductions for vegetables (-1.18%), spirits (-0.55%), gas (-0.65%), household textiles (-0.43%), medical services (-0.29%), bicycles (-2.73%), scotch carts (-1.10%), telephone equipment (-2.15%), electrical appliances (-0.34%), and jewellery clocks and watches (-0.84%).
FISCAL DEVELOPMENTS
Revenues
14. During the month of February 2012, ZIMRA collected US$215.3 million against a target of US$218 million. Diamonds and non-tax revenues amounted to US$5 million and US$7.4 million, against targets of US$41.5 million and US$10.5 million, respectively, as indicated in the Table below:
Revenue Collections: February 2012
Revenue Source Targeted Collections
US$ mil Actual Collections
US$ mil Variance
US$ mil
ZIMRA Collections 217.93 215.31 2.62
Diamonds 41.50 5.00 36.50
Non-Tax Revenue 10.46 7.36 3.10
Total 269.90 227.67 42.22
15. Total collections were, therefore, US$227.7 million against a target of US$270 million. This, therefore, implies that the Government incurred a revenue collection deficit of US$42.2 million in February 2012.
16. Cumulatively, the actual revenue collections for January and February 2012 amount to US$488.24 million, against a target of US$549.5 million, implying a cumulative deficit of US$61.24 million, largely emanating from under-performance of diamond revenues (US$58 million).
Cumulative Revenue Collections: January – February 2012
Revenue Source Targeted Collections
US$ mil Actual Collections
US$ mil Variance
US$ mil
ZIMRA Collections 450.95 450.24 0.71
Diamonds 77.50 19.50 58.00
Non-Tax Revenue 21.03 18.50 2.53
Total 549.5 488.24 61.24
Expenditures
February 2012 Expenditures
17. Actual expenditure for February 2012 was US$286.9 million against an approved expenditure framework of US$269.2 million. Of the total expenditures, US$254 million were current and US$24.2 million for capital development, leaving a balance of US$8.6 million for ZIMRA programmes.
Expenditures: February 2012
Targeted Expenditure
US$ mil Actual Expenditure
US$ mil Variance
US$ mil
Recurrent 240.50 254.07 13.57
ow: Wage Bill 155.2 187.4* 32.2
Capital 20.08 24.24 4.16
ZIMRA 8.61 8.61 –
Total 269.19 286.93 17.74
*This is the February 2012 wage bill exclusive of January 2012 arrears payments. Actual wage bill payments including January 2012 arrears were 219.7 million.
Employment Costs
18. Following consultations with Government Staff Associations on the review of the Pay Structure for the Public Service, Government, in February 2012, implemented an adjustment of Pay Scales effective 1 January 2012.
19. Therefore, the monthly employment cost bill for February 2012 increased to US$187.4 million from US$155.2 million in January 2012. However, taking account arrears for January 2012 as per the agreed new pay structure, total employment costs paid out in February 2012 amounted to US$219.7 million.
Non-Wage Budget Performance
20. Revenue underperformance of around US$59.2 million in February 2012 has undermined the implementation of targeted projects and programmes.
21. Budget support for service delivery in such areas as health, education, agricultural extension services & social protection and rehabilitation & construction of capital projects was, therefore, compromised as shown in the graphs below.
Budget Outturn: February 2012
22. Therefore, for the month of February 2012, the financing gap was US$59.2 million, which was met from January 2012 carry-overs.
Budget Outturn: February 2012
Totals Targeted US$ mil Actual US$ mil
Revenue 269.90 227.67
Expenditures 269.19 286.93
Variance 0.70 (59.26)
Outlook: March 2012
23. Total revenue collections of US$320.22 million are anticipated in March 2012, broken down as follows.
Revenue Source Targeted Collections
US$ mil
ZIMRA Collections 264.39
Diamonds 41.50
Non-Tax Revenue 14.33
Total 320.22
Capital Development Budget and Programmes
Disbursements for Capital Projects: Jan –Feb 2012
24. From the budget allocation of US$800 million, an amount of US$615 million is earmarked for infrastructure in energy, water and sanitation, transport, ICT, housing and social service delivery.
25. For the period January – February 2012, a total of US$29.2 million had been disbursed for various capital programmes. Of this amount, US$18.9 million was channelled towards various infrastructure projects, US$2.5 million for payment to farmers for wheat deliveries and US$6.1 million for payment of outstanding amounts to seed and fertilizer suppliers under the Crop Input Support Programme as shown in the Table below:
Projects Financed from Budget Resources during the 1st Two Months
Sector
Budget
US$
Amount
Disbursed
US$ Disbursement
as
% of Budget
Energy 47,500,000 500,000 1.1%
Transport & Communication 113,400,000 1,600,000 1.4%
Water & Sanitation 113,245,000 900,000 0.8%
Housing 118,610,000 3,651,390 3.1%
ICT 40,200,000 100,000 0.2%
Education 85,200,000 5,853,815 6.9%
Health 63,425,000 5,204,000 8.2%
Agriculture – Irrigation & Rehab. Of Research Institutions 25,850,000 1,100,000 4.3%
Subtotal for Infrastructure Projects 615,430,000 18,909,205 3.1%
Other Capital Expenditures
Strategic Grain Reserve-Wheat Deliveries 50,200,000 2,500,000 5.0%
Crop Input Support 37,000,000 6,123,200 16.5%
Compensation For Farm Improvements 6,000,000 740,000 12.3%
Shareholding in International Organisations 12,000,000 800,000 6.7%
Other 79,370,000 176,600 0.2%
Sub-Total 184,570,000 10,339,800 5.6%
Total 800,000,000 29,249,005 3.7%
PUBLIC FINANCE MANAGEMENT REGULATIONS
26. Treasury is working on finalising draft Regulations to fully operationalise the Public Finance Management Act.
FINANCIAL SECTOR REFORMS
Statutory Reserves
27. An agreement between the Reserve Bank and the banking sector has been reached over the issue of the US$83.58 million owed to banks as Statutory Reserves. The Reserve Bank Governor will issue instruments against the amount owed to banks, and these instruments will have tenors of 2, 3 and 4 years with interest rates of 2.5%, 3% and 3.5% respectively as indicated in the Table below: –
Description Amount
(US$) Tenor Interest Rate
Per Annum
30% of Outstanding balance 25 mil 2 years (1 Jan 2012 –
31 Dec 2013) 2.5%
30% of Outstanding balance 25 mil 3 years (1 Jan 2012 –
31 Dec 2014) 3%
40% of Outstanding balance 33.6 mil 4 years (1 Jan 2012 –
31 Dec 2015) 3.5%
28. The Instruments will have the following features: –
• Prescribed asset status;
• Liquid asset status;
• Half yearly coupon;
• Tax exemption;
• Tradable; and
• Lender of Last Resort security status.
29. This arrangement will promote inter-bank trading and also allow banks to use the instruments as security when accessing the Lender of Last Resort funds from the Reserve Bank, that way ensuring utilisation of the resources which the banks have been failing to access.
30. Institutions not willing to participate in the above Scheme will have the option of being issued with 15 year Bonds at an interest rate of 3% per annum.
Infrastructure Development Bonds
31. Treasury has mandated the Infrastructure Development Bank (IDBZ) to issue US$50 million worth of Infrastructure Development Bonds. Resources mobilised will complement PSIP Budgetary resources allocated in the 2012 Budget.
32. In addition to mobilising resources for infrastructure development, the Bonds also facilitate inter-bank market operations.
33. The Bonds will have the following features: –
• 5 year tenor;
• 10% interest rate per annum;
• Government guarantee;
• Prescribed asset status;
• Liquid asset status;
• Half yearly coupon;
• Tax exemption;
• Tradable; and
• Lender of Last Resort security status.
34. Treasury will establish a Sinking Fund to facilitate interest and principal payments. Modalities are being finalised with the IDBZ for the issuance of the Bonds.
Lifting of Cash Withdrawal Limits
35. Government, through the Reserve Bank lifted the previously announced cash withdrawal limits and Withdrawal Notice Requirements for high value transactions with effect from 1 March 2012.
36. This follows debate on the need for building confidence in the financial sector as well as improving the liquidity situation and encouraging use of the formal banking system.
Nostro Accounts
37. Treasury and the Reserve Bank consulted and agreed with the Bankers Association of Zimbabwe, on the need to repatriate all other Nostro Account balances in excess of banks’ needs, pending international payment obligations and for the purposes of taking positions in the international market.
38. With effect from March 1, 2012, banks started reducing their Nostro Accounts to a maximum of 25% of their balances. This will be increased to 30% by June 2012.
39. Treasury, in conjunction with the Reserve Bank is monitoring compliance on the repatriation process.
Capitalisation of the Banking Sector
40. In order to develop a strong and secure banking sector that is immune to systemic risk, I have mandated the Reserve Bank to develop a framework for mergers between the banking institutions given that some banks are failing to comply with capital requirements.
41. Modalities of the Framework will be announced in due course.
Lines of Credit
Zimbabwe Economic and Trade Revival Facility (ZETREF)
42. To date, US$62 million was allocated to eleven (11) participating banks of which US$45.2 million worth of projects have been approved by the ZETREF Assessment Committee. Actual disbursements to date are US$17.8 million.
43. Low disbursements are due to delays by banks in paying upfront fees, and applying for draw-downs.
Participating
Bank
Allocated
Amount
US$ Approvals by the Committee
US$ Disbursements
US$
Trust Bank 3 000 000 1 000 000 714 200
Kingdom Bank 4 000 000 – –
Agribank 5 000 000 4 970 000 –
BancABC 5 000 000 4 000 000 –
NMB 5 000 000 5 065 000 3 309 480
POSB 5 000 000 250 000 –
TN Bank 5 000 000 2 240 000 299 988
ZB Bank 5 000 000 3 980 000 2 250 000
Metropolitan Bank 5 000 000 5 000 000 3 571 360
IDBZ 10 000 000 8 904 219 600 000
FBC Bank 10 000 000 9 746 942 7 099 261
Total 62 000 000 45 156 161 17 844 289
Sectoral Distribution
44. The manufacturing sector dominates the sectoral distribution of the project, which shows that most funds were allocated to the productive sectors of the economy for purposes of increasing capacity utilisation as well as value addition.
Sectoral Distribution of ZETREF Beneficiaries
Sector Percentage (%)
Manufacturing 57
Agriculture 26
Health 13
Tourism 1
Media 3
Distressed and Marginalised Areas Fund (DiMAF)
45. Following the launch of DiMAF in Bulawayo, on 10 October 2011, modalities for implementation of the Facility were put in place and eligible companies were invited to submit projects to CABS.
46. To date, applications submitted to CABS amount to US$16.9 million, of which US$12.2 million is for Bulawayo projects. Projects totalling US$3.4 million have been approved, whilst actual disbursements amount to US$1.97 million.
Exports
47. Cumulative declared exports shipment for the period 1 January to 2 March 2012 increased by 6.38% reaching U$584 million compared to U$549 million dollars declared in the same period in 2011. Of this amount, mining followed by tobacco exports accounted for the bigger share of 70.5% and 14.5% respectively.
Export Performance 1 January to 2 March 2012
Sector Exports:1 Jan to 2 March 2011 (U$ m) Exports:1 Jan to 2 March 2012 (U$ m)
Mining 334 412
Tobacco 419 85
Agriculture 32 37
Manufacturing 30 47
Horticulture 3 1
Hunting 2 1
Total 549 584
48. Of the mineral exports, platinum followed by diamonds contributed most.
Mining Sector Exports
Mineral Exports Contribution
Mineral Contribution (%)
Platinum 29.7
Diamonds 27.3
Gold 23.6
Ferrochrome 9.2
Others 10.2
Total 100
THE 2012 POPULATION CENSUS
49. Zimbabwe will be conducting its fourth population census after independence, from 18 – 28 of August 2012. This is an important exercise which provides socio-economic data required in the formulation, monitoring and evaluation of development plans and programmes.
50. A sum of US$37.2 million is required to carry out the 2012 Population Census. A provision of US$22 million was made in the 2012 National Budget for the exercise. The balance of US$15.2 million will have to be sourced, also targeting development partners.
Stakeholder Support for the Census
51. I shall issue a Statutory Instrument in due course to give legal effect to the 2012 Population Census.
CONCLUSION
52. Government, through the Ministry of Finance, will continue to update the Nation on the State of the Economy through issuing monthly Press Statements.
Hon. T. Biti, MP
Minister of Finance
14 March 2012