Murerwa forecast growth in 2005


Acting Finance Minister Hebert Murerwa forecast a 3.5 to 5 percent growth and inflation of between 30-50 percent, more or less echoing what central bank governor Gideon Gono had said in his monetary statement.

But the United States embassy doubted the predictions as there was nothing to support such optimism.

Murerwa was acting minister as Chris Kuruneri who had been jailed since March effectively remained the minister.

Under its best guess scenario, the US embassy said Zimbabwe might devalue the dollar but this would only be after the March 2005 elections.

If there was any growth, helped by devaluation, this would be between 0.5 and 1.5 percent.

There was no way inflation could be reduced to between 30 and 50 percent especially if there was significant devaluation of the Zimbabwe dollar.


Full cable:


Viewing cable 04HARARE1966, A Rose-Tinted 2005 Budget

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Reference ID






2004-12-06 06:13

2011-08-30 01:44


Embassy Harare

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


060613Z Dec 04













E. O. 12958: N/A


SUBJECT: A Rose-Tinted 2005 Budget



Sensitive but unclassified. Not for Internet posting.


Ref: a) Harare 1818   b) Harare 1588


1. (U) Summary: Echoing the line laid out in Reserve Bank

(RBZ) Governor Gideon’s Oct 28 address (ref a), acting

GOZ Finance Minister Herbert Murerwa forecast robust 3.5-

5 percent GDP growth and 30-50 percent inflation for

2005. In his long annual budget presentation to

Parliament on Nov 25, Murerwa dodged everything and

anything controversial, including why Chris Kuruneri,

jailed since March, remains finance minister. Murerwa

did not utter the phrase “exchange rate,” the economy’s

most debated matter, and suggested no timetable for

dealing with other macroeconomic distortions, such as

negative real interest rates and high statutory reserve

requirements. In our view, the GOZ will not achieve

these bullish goals. Nonetheless, if the GOZ carries out

a significant devaluation of the zimdollar in 2005, we

feel the economy could register modest growth from its

current depressed levels. End summary.


The Budget in a Nutshell


2. (U) The Finance Minister expects 3.5-5 percent

positive growth driven by production increases of 16

percent in agriculture and 7.5 percent in mining. He did

not project tourist sector growth but said it will

“benefit tremendously” from a burgeoning influx of

Chinese tourists. Murerwa forecast manufacturing output

will recede by only 5 percent, its lowest annual decline

since 1998. In order to spur growth, Murerwa proposes

supply-side tax cuts by raising the thresholds for all

tax brackets. Finally, Murerwa reiterated the RBZ’s

expectation of 30-50 percent inflation, down from the

current 206 percent.


3. (SBU) Is it all possible? Since the GOZ has still to

reach many critical decision crossroads, it is hard to

forecast the economy’s 2005 performance. For example, no

observer could have predicted in late-2003 that gold

exports would rebound from 12 to 20 tons this year, since

Gono did not establish a preferential exchange rate for

bullion until March. A significant devaluation, whether

across-the-board or sectoral, would trigger an increase

in exports and, by extension, GDP. Likewise, President

Mugabe’s sudden departure, unforeseen at this time, could

cause tourism and foreign investment to surge. At this

juncture, there are many unknowns to be able to make

confident predictions, although Murerwa is gamely trying

to put the best face on the situation.


Our Current Best-Guess Scenario


4. (SBU) With that caveat, we offer these cautious



– Devaluation. We believe the GOZ will implement a hefty

devaluation in 2005, most likely only after March’s

parliamentary elections. Operating at a Z$5600:US$ rate

(a 50 percent discount to the parallel market rate),

exporters are in such dire straits that even the GOZ will

see the need to grant some relief. Perhaps tellingly,

Murerwa’s budget calls for 215 percent more spending in

2005 than in 2004, but forecasts only 30-50 percent

inflation – implying an enormous and unexplained spike in

expenditure even after controlling for inflation. We can

only attribute this nominal spending increase to the

GOZ’s unspoken anticipation of a large devaluation.


– Economic Growth. Helped along by this devaluation, we

feel GDP could register positive growth for the first

time in seven years. But we believe it will be on the

order of .5-1.5 percent rather than the GOZ’s forecasted

3.5-5 percent. Even though economic output is far below

its late-1990s peaks, it seems ready to inch up in

certain sectors. In tourism, international visitors to

Zimbabwe are increasing marginally (a topic we elaborate

upon in septel). In farming, our own unscientific

observation suggests small-scale farmers – including land

reform beneficiaries – have now prepared more land for

planting than during the 2003/2004 season. Tobacco

output may have bottomed out at 65 million kgs, roughly

75 percent below the 2000 harvest, while cotton output

continues to grow rapidly. In mining, exports of

asbestos, chrome and platinum could take advantage of

high world prices, provided the GOZ allows a reasonable

depreciation of the zimdollar as it has for gold exports

(ref b).


– Inflation. We do not believe 30-50 percent inflation

is plausible, especially after a significant devaluation.

The inflation rate has fallen swiftly in recent months

because the GOZ’s Central Statistical Office (CSO)

calculates inflation on a year-to-year basis (rather than

annualizing the current month’s rate) and Sept-Nov 2003

experienced the economy’s highest monthly rates (between

25-34 percent). Because the Sept-Nov 2004 rates (which

are well below Sept-Nov 2003 levels) are currently being

included in the annual inflation rate calculations, these

appear to be dropping rapidly. The impact will be more

modest when, for example, Feb-Apr 2005 replaces Feb-Apr

2004’s lower monthly rates of 5-6 percent. We also

believe the GOZ will fan inflation by printing (i.e.,

expanding money supply) its way through a projected

budget deficit of 5 percent of GDP, as there are no

foreign inflows and few buyers for GOZ-issued bonds and

treasury bills. In the past, the GOZ compelled local

pension funds to invest in these “sucker” investments

that carry negative real interest rates, but the pension

fund “well” has now been mostly exhausted.   Finally,

statutory requirements for financial institutions, which

the GOZ has been treating as a revenue source, have now

reached a sky-high 60 percent. It’s difficult to imagine

many more increases. For these reasons, we see few

options for deficit financing other than aggressive and

inflationary money supply growth.




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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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