Mugabe asked why agricultural season catches government by surprise every year

President Robert Mugabe is reported to have asked delegates to the Zimbabwe African National Union-Patriotic Front why the agricultural season seemed to catch the government by surprise every year.

Mugabe was referring to why the government was not ready for the season each year with inputs being delivered sometimes as late as January, which was already mid-way through the rainy season.

Finance Minister Herbert Murerwa had just predicted a strong rebound in the agricultural sector as a result of normal rains, more arable land under irrigation and the timely supply of inputs.

Farmers, however, complained that it was already too late to get the needed inputs to farmers.

Ed: Mugabe’s question remains unanswered up to today. Seven years down the line, the government is still unprepared for each agricultural season.

Full cable:

Viewing cable 05HARARE1674, THE 2006 BUDGET – FAULTY PREMISES UNDERMINE THE

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UNCLAS SECTION 01 OF 02 HARARE 001674

SIPDIS

SENSITIVE

AF/S FOR B. NEULING

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

STATE PASS TO USAID FOR M. COPSON AND E.LOKEN

TREASURY FOR J. RALYEA AND B. CUSHMAN

USDOC FOR ROBERT TELCHIN

E.O. 12958: N/A

TAGS: EAGR ECON EFIN EMIN PGOV

SUBJECT: THE 2006 BUDGET – FAULTY PREMISES UNDERMINE THE

OPTIMISM

——-

Summary

——-

¶1. (SBU) Zimbabwe,s 2006 budget, announced December 1 by

Finance Minister Murerwa, is premised on a number of

unrealistic projections, primarily a strong rebound in the

agricultural and mining sectors. It forecasts 2-3.5 percent

GDP growth in 2006, a fall in inflation to 80 percent by

end-2006, and a decline in the budget deficit to 4.6 percent.

Without fundamental and comprehensive reform, the figures

are instead likely to be continued GDP contraction, inflation

approaching four digits, and a spiraling deficit. End

Summary.

——————————————— —

Rosy Prognosis for 2006 Based on Faulty Premises

——————————————— —

¶2. (SBU) Finance Minister Murerwa presented the 2006 Budget

to Parliament on December 1. He conceded that the Zimbabwean

economy would contract by 3.5 percent in 2005 (the IMF

forecasts 7.2 percent contraction), and that the

agricultural, mining and manufacturing sectors would decline

by 12.8 percent, 5.7 percent, and 3 percent respectively this

year. Nevertheless, he said he was basing the GOZ,s 2006

budget on an imminent economic turnaround. For 2006, Murerwa

forecast:

– 14.8 percent growth in the agricultural sector,

– 27 percent growth in the mining sector, and

– manufacturing and tourism recoveries.

which would lead to:

– 2-3.5 percent GDP growth,

– a 4.6 percent budget deficit, and

– end-year inflation of 80 percent.

¶3. (SBU) Murerwa said the there would be a strong rebound in

the agricultural sector as a result of normal rains, more

arable land under irrigation and the timely supply of inputs.

However, a variety of sources have criticized the government

for not adequately preparing for the agricultural season,

including the Parliamentary Portfolio Committee in early

November (reftel) and the Commercial Farmers, Union (CFU),

both of which concluded that it was now too late to get

needed inputs to farmers. In that regard, economic analyst

John Robertson told us on December 7 that there would be

further serious food shortages in 2006. At the December

10-11 ZANU-PF Party Congress, President Mugabe reportedly

joined the chorus, asking rhetorically why the annual

agricultural season seemed to catch the government by

surprise every year.

¶4. (SBU) The forecast growth in the mining sector also

appears unlikely to be realized. At a post-budget meeting

hosted by the Zimbabwe National Chamber of Commerce (ZNCC) on

December 2, David Matanga of the Chamber of Mines said the

sector could not achieve the growth rate envisioned in the

budget as long as it was saddled with the requirement to

relinquish large percentages of its forex earnings to the RBZ

at unfavorable exchange rates. He added that shortages of

inputs, high inflation, and electricity outages were among

additional obstacles to increased production. However, the

biggest obstacle, according to Matanga, was that GOZ meddling

in the sector had undermined investor confidence.

¶5. (SBU) Murerwa,s budget statement blithely forecast that

Zimbabwe,s &track record of peace and tranquility8 would

benefit the tourism sector. Third quarter figures from the

Zimbabwe Tourism Authority, however, belie the optimism, as

tourist arrivals fell 27 percent, particularly in the

high-spending overseas market, compared to the same period

last year. In addition, the modest recovery in manufacturing

that followed the recent devaluation is not likely to be

sustainable as long as essential raw material imports remain

in short supply due to fuel and forex shortages.

¶6. (SBU) On the expenditure side, the 2006 budget increased

the wage bill, which is 40 percent of total expenditure, by

200 percent. With annualized inflation over 500 percent and

rising (septel), and wage levels not increased since January

2005, the deep erosion of civil servant purchasing power

remains unabated.

——————————————— —–

Comment – 2006 Likely to See More Economic Decline

——————————————— —–

¶7. (SBU) What Murerwa,s unrealistic budget presentation

failed to address in earnest were the market reforms needed

to reverse the country,s economic collapse. The

government,s continued heavy and inefficient hand in

Zimbabwe,s core forex-earning sectors, especially

agriculture and mining, the bleak outlook for recovery in

tourism, the immense burden of go-it-alone debt financing,

and the inexorable pressure on wages from the civil service,

foreshadow yet another year of macroeconomic instability and

GDP contraction.

¶8. (SBU) Without fundamental and comprehensive reform and

facing a shrinking revenue base, we expect to see Minister

Murerwa back before Parliament in 2006 with a supplementary

budget request that will again drive inflation toward four

digits, push the budget deficit wider, and keep the economy

reeling on the brink of collapse.

DELL

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