US embassy cable - 03HARARE1697

UNCLAS HARARE 001697 
 
SIPDIS 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EINV, PGOV, ZI 
SUBJECT: Ho-Hum Supplementary Budget 
 
 
1. Summary: The GOZ's supplementary budget announcement 
held no surprises.  Spending for calendar year 2003 
increased 85 percent, accounting for higher than forecast 
(by the GOZ) inflation.  In his speech to parliament, 
Finance Minister Herbert Murerwa brokered no solutions to 
Zimbabwe's many economic crises. End Summary. 
 
2. In what has become an annual ritual, the GOZ announced 
a supplementary budget on August 21 that revises the 
initial budget's fanciful spending projections.  The 
Z$672 billion supplementary budget increases the 
original's budget's Z$784 billion allocation to Z$1,442 
billion.  The GOZ's inability to pare inflation down to a 
projected 96 percent (it's currently 400 percent) has 
meant higher outlays in local currency.  The pay of most 
civil servants has more than doubled. 
 
Controversial Issues Not Addressed 
---------------------------------- 
3. The Finance Minister did not say: 
 
- whether nominally higher tax revenues (due to 
inflation) would cover the proposed appropriations, or 
how much the GOZ intends to borrow through domestic 
bonds.  The GOZ published no new revenue projections. 
 
- how and when the GOZ would renormalize fuel imports. 
(Gas stations have been completely dry for four months. 
Most motorists depend on the black market.) 
 
- when and by how much the GOZ will devalue the 
Zimdollar.  The official rate of Z$824:US$1, less than 
one-sixth the market rate, causes exporters to sacrifice 
nearly half their revenue.  (They must exchange 50 
percent of earnings at the official rate.)  A more 
realistic exchange rate would undoubtedly boost GOZ 
export receipts. 
 
- how the GOZ intends to solve the cash crisis.  The 
shortage of banknotes has made life taxing for all 
Zimbabweans, distressing for the poor. 
 
Comment 
------- 
4. Last week's budget announcement reinforces the 
perception that GOZ decision-making remains comatose. 
While there are vested fuel interests that stand to lose 
market share when multinationals reenter the game, the 
GOZ has little to lose by raising the official exchange 
rate (few can buy dollars at Z$824:US$1) or printing 
larger banknotes (a matter of pride).  Somehow it is 
impossible for reasonable proposals from the Ministry of 
Finance or Reserve Bank to move up the line. 
 
Sullivan