US embassy showers Makoni with praise on his first budget

Although Finance Minister Simba Makoni had announced a 2001 budget that was going to have a deficit of 15 percent of gross domestic product, the United States embassy said his budget was probably the most honest and thoughtful that had been tabled in Zimbabwe’s 20 years of independence.

It said large numbers of constituencies were consulted in its formulation, and it also looked carefully back on previous budgets, resurrecting ideas considered worthwhile.

The budget courageously outlined the principal causes, and some of the harsh consequences, of the current economic crisis.

“Its action initiatives are all good. However, the budget is also a compromise, on both the political and economic fronts. It contains a considerable dose of hope over experience, in both its revenue projections and in its blithe assumption that fiscal discipline will become institutionalised,” the embassy said.

Full cable:

Viewing cable 00HARARE6566, ZIMBABWE’S 2001 BUDGET; A REALISTIC, AND TOO

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221628Z Nov 00

CONFIDENTIAL     PTQ4894

PAGE 01       HARARE 06566 01 OF 04 221629Z

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DODE-00 DOTE-00 SRPP-00 DS-00   EB-00   EXIM-01 E-00

FAAE-00 VC-00   FRB-00   H-01     TEDE-00 INR-00   ITC-01

L-00     VCE-00   AC-01   NSAE-00 OMB-01   OPIC-01 PA-00

PM-00   PRS-00   ACE-00   P-00     SP-00   SSO-00   STR-00

USIE-00 FMP-00   PMB-00   DSCC-00 DRL-02   G-00     NFAT-00

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——————A2C816 221630Z /38

FM AMEMBASSY HARARE

TO SECSTATE WASHDC PRIORITY 7684

INFO DEPT OF TREASURY WASHDC

SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

USDOC WASHDC

NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 HARARE 006566

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC,

TREASURY FOR ED BARBER AND BARAK HOFFMAN

DOC FOR 4510 HENDERSON

NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

STATE PASS USTR FOR ROSA WHITTAKER

E.O. 12958: DECL: 11/22/08

TAGS: EFIN ECON PGOV BEXP ZI

SUBJECT: ZIMBABWE’S 2001 BUDGET; A REALISTIC, AND TOO

CONFIDENTIAL

PAGE 02       HARARE 06566 01 OF 04 221629Z

OPTIMISTIC, EFFORT

REF: A) 1999 HARARE 6723

CLASSIFIED BY AMBASSADOR MCDONALD. REASONS 1.5 (B) AND (D)

——-

SUMMARY

——-

¶1. (C) ON NOVEMBER 16 ZIMBABWE’S MINISTER OF FINANCE AND

ECONOMIC DEVELOPMENT, SIMBA MAKONI, ANNOUNCED ZIMBABWE’S 2001

BUDGET IN A READING BEFORE PARLIAMENT. IN OUR OPINION THE

BUDGET HONESTLY DEPICTS THE SEVERE ECONOMIC CRISIS THE NATION

IS TRAPPED IN, IS CREATIVE IN ITS ATTEMPTS TO ADDRESS

PROBLEMS, BUT WILL FAIL TO SLASH THE DEFICIT AS PROJECTED.

(IT SETS DEFICIT TARGETS OF 15 PERCENT OF GDP IN 2001, 9

PERCENT IN 2002 AND 4 PERCENT IN 2003.) DOMESTICALLY, THE

BUDGET HAS RECEIVED MIXED REVIEWS. ON THE ONE HAND MANY

ZIMBABWEANS ARE APPRECIATIVE OF THE HONEST ASSESSMENT OF THE

CURRENT ECONOMIC CRISIS. ON THE OTHER HAND, THERE IS SERIOUS

DOUBT THAT SOME OF THE CREATIVE MEASURES HAVE ANY CHANCE OF

BEING IMPLEMENTED OR FOLLOWED THROUGH IN THE CURRENT

POLITICALLY-DRIVEN CLIMATE OF PRESIDENT MUGABE. ANOTHER

REASON BEHINDS ITS POSITIVE RECEPTION IN SOME QUARTERS IS THE

UNPRECEDENTED EXTENSIVE CONSULTATION PROCESS THE FINANCE

MINISTER INSTITUTED DURING ITS DRAFTING.

¶2. (SBU) THE BUDGET PROJECTS TOTAL EXPENDITURES OF ZIM $224

BILLION (APPROXIMATELY U.S. $4.7 BILLION, 2.6 BILLION OF

WHICH IS INTEREST ON THE DEBT), A 57 PERCENT INCREASE FROM

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PAGE 03       HARARE 06566 01 OF 04 221629Z

THIS YEAR’S REVISED OUTLAY OF ZIM $143 BILLION (APPROXIMATELY

U.S. $2.6 BILLION). REVENUE OF ZIM $140 BILLION IS

PROJECTED, LEAVING A BUDGET DEFICIT OF ZIM $86 BILLION (U.S.

$1.6 BILLION), OR 15.5 PERCENT OF PROJECTED 2001 GDP.

¶3. (C) HIGHLIGHTS OF THE 2001 BUDGET INCLUDE THE CONTINUATION

OF THE THREE PERCENT HIV/AIDS LEVY, A CUT IN THE TOBACCO LEVY

FROM 2.5 TO 1.5 PERCENT, INTRODUCTION OF A COMPUTERIZED CASH-

BUDGET SYSTEM AIMED AT STOPPING BUDGET OVERRUNS, A ZIM $1.3

BILLON ALLOCATION FOR LAND RESETTLEMENT (ABOUT U.S. $23.6

MILLION), A 13 PERCENT DECREASE FOR DEFENSE SPENDING (IN

NOMINAL TERMS), AND AN 18 PERCENT NOMINAL INCREASE FOR HEALTH

SPENDING. THE BUDGET ALSO INTRODUCES A CAP ON THE CIVIL

SERVICE WAGE BILL, FROM THE CURRENT 16.7 PERCENT OF GDP DOWN

TO 12 PERCENT. HOW THIS WILL BE ACHIEVED IS NOT SPELLED OUT.

¶4. (C) OVERALL WE ASSESS THE BUDGET AS A GOOD EFFORT

CONSIDERING THE ECONOMIC, SOCIAL AND POLITICAL CONTEXT. ON

THE POSITIVE SIDE IT IS NOT A HEAD-IN-THE-SAND EFFORT, AND IT

LAYS THE BASIS FOR AN ATTEMPT AT REOPENING DISCUSSIONS WITH

THE INTERNATIONAL FINANCIAL INSTITUTIONS. ON THE NEGATIVE

SIDE IT FALLS SHORT IN ADDRESSING THE PROBLEM OF HOW

INFLATION WILL BE TAMED, IT ASSUMES THAT FISCAL DISCIPLINE

WILL TAKE ROOT, AND IT IS EXCESSIVELY OPTIMISTIC IN

PROJECTING REVENUE IN A RAPIDLY SHRINKING ECONOMY, THEREBY,

UNDERESTIMATING, IN OUR OPINION, NEXT YEAR’S DEFICIT. THE

MINISTERIAL ALLOCATIONS, WHICH ARE ALL REDUCED IN REAL TERMS

AFTER FACTORING IN INFLATION WILL RESULT, IN OUR OPINION, IN

ANOTHER SUPPLEMENTAL BUDGET BEING REQUIRED SOMETIME IN THE

SECOND HALF OF NEXT YEAR. IN ADDITION AND IN THE END,

ACTIONS MUST MATCH THE RHETORIC AND WORDS. WE ARE SKEPTICAL

CONFIDENTIAL

PAGE 04       HARARE 06566 01 OF 04 221629Z

THAT MAKONI WILL GET OR ACHIEVE ALL HE AMBITIOUSLY SETS OUT

TO ACCOMPLISH. END SUMMARY.

——————————————–

THE EXTENT AND CAUSES OF THE ECONOMIC CRISIS

——————————————–

¶5. (SBU) INQS BUDGET SPEQ MINISTER MAKONI WAS BLUNT IN

HIS ASSESSMENT AND LISTING OF THE CAUSES OF ZIMBABWE’S

ECONOMIC CRISIS, PAINTING A STARK PICTURE OF DAY-TO-DAY

HARDSHIP FOR THE AVERAGE ZIMBABWEAN.   HE ADMITTED THAT THE

CURRENT HARSH CONDITIONS HAD TURNED ZIMBABWE INTO A

CARICATURE OF COLONIAL-ERA POVERTY AND OPPRESSION; WITH

DEEPENING POVERTY, GROWING UNEMPLOYMENT, SHORTER WORKING

HOURS, RISING COSTS AND A DECLINE IN THE DELIVERY OF SOCIAL

SERVICES. OTHER SYMPTOMS OF THE CRISIS CITED IN THE SPEECH

INCLUDE THAT MANY FAMILIES CAN NO LONGER AFFORD MORE THAN ONE

MEAL A DAY, THAT WORKERS – UNABLE TO PAY TRANSPORT COSTS –

WALK OR CYCLE TO THEIR PLACE OF EMPLOYMENT, FEWER CAN MAKE

VISITS TO THEIR RELATIVES IN THE RURAL AREAS, AND FAMILIES

AND SOCIETY AS A WHOLE ARE INCREASINGLY FAILING TO CARE FOR

THE NEEDY. THE CAUSES OF THE ECONOMIC CRISIS WERE OUTLINED

AS:

O “UNCERTAINTY” OVER SEIZURES OF WHITE-OWNED LAND;

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DODE-00 DOTE-00 SRPP-00 DS-00   EB-00   EXIM-01 E-00

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L-00     VCE-00   AC-01   DCP-01   NSAE-00 OMB-01   OPIC-01

PA-00   PM-00   PRS-00   ACE-00   P-00     SP-00   IRM-00

SSO-00   STR-00   USIE-00 FMP-00   R-00     PMB-00   DSCC-00

DRL-02   G-00     NFAT-00 SAS-00     /010W

——————A2C82E 221630Z /38

P 221628Z NOV 00

FM AMEMBASSY HARARE

TO SECSTATE WASHDC PRIORITY 7685

INFO DEPT OF TREASURY WASHDC

SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

USDOC WASHDC

NSC WASHDC

C O N F I D E N T I A L SECTION 02 OF 04 HARARE 006566

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC,

TREASURY FOR ED BARBER AND BARAK HOFFMAN

DOC FOR 4510 HENDERSON

NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

STATE PASS USTR FOR ROSA WHITTAKER

E.O. 12958: DECL: 11/22/08

TAGS: EFIN ECON PGOV BEXP ZI

SUBJECT: ZIMBABWE’S 2001 BUDGET; A REALISTIC, AND TOO

CONFIDENTIAL

PAGE 02       HARARE 06566 02 OF 04 221629Z

OPTIMISTIC, EFFORT

O “PERCEPTIONS” OF THE LACK OF THE RULE OF LAW;

O THE COST OF MILITARY INVOLVEMENT IN THE CONGO;

O INCREASING CORRUPTION; AND,

O THE GROWING FREQUENCY AND MAGNITUDE OF UNBUDGETED

EXPENDITURES.

—————–

BUDGET HIGHLIGHTS

—————–

¶6. (SBU) KEY PROPOSALS CONTAINED IN THE 2001 BUDGET ARE:

= TOTAL GOVERNMENT SPENDING TO INCREASE 57 PERCENT (NOMINAL

TERMS);

= MORE THAN HALF THIS SPENDING IS INTEREST ON NATIONAL DEBT;

= TOTAL MINISTERIAL SPENDING DROPS ABOUT 20 PERCENT IN

NOMINAL TERMS;

= IN REAL TERMS (ASSUMING 50 PERCENT INFLATION) THIS AMOUNTS

TO MORE THAN A 50 PERCENT DROP IN GOVERNMENT PROGRAM

SPENDING);

= OVERALL THE BUDGET IS PRO-CONSUMER AND PRO-BUSINESS (LOW &

MIDDLE INCOME WORKERS GET TAX RELIEF AND BUSINESS IS

GENERALLY LESS-HEAVILY TAXED);

= THE CORPORATE TAX RATE IS REDUCED FROM 35 TO 30 PERCENT;

= A SPECIAL BREAK FOR MINING COMPANIES (TO ENCOURAGE

INVESTMENT) REDUCES THEIR TAX RATE TO 25 PERCENT;

= ZIM $1.3 BILLION IS ALLOCATED FOR LAND RESETTLEMENT (ABOUT

U.S. $23 MILLION)

= CIVIL SERVICE WAGE COSTS ARE CAPPED AT 12 PERCENT OF GDP

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PAGE 03       HARARE 06566 02 OF 04 221629Z

V.S. THIS YEAR’S ESTIMATED 16.7 PERCENT COST (SPECIFICS OF

IMPLEMENTATION ARE NOT PROVIDED);

= THE DEFENSE DROP OF 13.5 PERCENT HINGES ON “THE

ANTICIPATED POSITIVE OUTCOME OF INITIATIVES TO BRING PEACE TO

THE DRC”;

= PROJECTED REVENUE (AT ZIM $140 BILLION OR ABOUT U.S. 2.55

BILLION) INCREASES ARE FUNDED PRIMARILY BY A SURGE IN INCOME

TAX (82 PERCENT) AND CUSTOMS DUTIES AND SALES TAXES (42

PERCENT);

= INTERNATIONAL DEVELOPMENT ASSISTANCE IS BUDGETED AT ZERO;

= CAPITAL EXPENDITURE IS AGAIN REDUCED;

= THERE ARE NO SPECIFIC MEASURES IN THE NEW BUDGET TO COMBAT

HIGH INFLATION/INTEREST RATES;

= A COMPUTERIZED CASH-BUDGET SYSTEM IS INTRODUCED TO CURB

OVER-BUDGET SPENDING (CALLED THE PUBLIC FINANCE MANAGEMENT

SYSTEM), AND;

= THE BUDGET DEFICIT IS VERY CONSERVATIVELY ESTIMATED TO BE

ONLY 15.5 PERCENT OF GDP IN 2001.

¶7. (SBU) MINISTRY-BY-MINISTRY AND TOTAL YEAR 2001 NOMINAL

SPENDING INCREASES FROM REVISED 2000 AMOUNTS ARE:

MINISTRY            PERCENT INCREASE

————————————–

PRESIDENT&CABINET     NIL

PARLIAMENT           5 PERCENT

LABOR&SOCIAL WELFARE 12 PERCENT

RURAL&WATER RESOURCES NIL

DEFENSE               -13.5 PERCENT

CONFIDENTIAL

PAGE 04       HARARE 06566 02 OF 04 221629Z

FINANCE               282 PERCENT

LAND&AGRICULTURE     43 PERCENT

EDUCATION&CULTURE     2 PERCENT

MINES&ENERGY         6 PERCENT

TRANSPORT&COMMUNICA. 63 PERCENT

INDUSTRY&INT’L TRADE 26 PERCENT

LOCAL GOVT&HOUSING   -11 PERCENT

HIGHER EDUC&TECHNOLOGY 5.6 PERCENT

HEALTH&CHILD WELFARE 18 PERCENT

FOREIGN AFFAIRS       -9 PERCENT

HOME AFFAIRS         -5 PERCENT

TOTAL BUDGET INCREASE   36 PERCENT

-OF WHICH-

GOODS&SERVICES INCREASE 13 PERCENT

TRANSFER PAYMENTS       72 PERCENT

¶8. (SBU) THE VERY LARGE FINANCE MINISTRY INCREASE OF 282

PERCENT IS CAUSED BY A SWELLING OF THE UNALLOCATED RESERVE

LINE ITEM FROM ZIM $2.3 BILLION TO ZIM $11.8 BILLION

(APPROXIMATELY U.S. $214 MILLION). THE RESERVE IS THE GOZ

CONTINGENCY AND EMERGENCY FUND, AND HAS BEEN INCREASED

SUBSTANTIALLY TO HAVE AN IDENTIFIABLE SOURCE OF FUNDS FOR

EMERGENCIES OR NATURAL DISASTERS (LIKE CYCLONE ELINE THIS

YEAR) TO DISPENSE TO APPROPRIATE MINISTRIES VIA THE NEW

CONFIDENTIAL

CONFIDENTIAL     PTQ4899

PAGE 01       HARARE 06566 03 OF 04 221630Z

ACTION AF-00

INFO LOG-00   NP-00   AID-00   CEA-01   CIAE-00 CTME-00 INL-00

DODE-00 DOTE-00 SRPP-00 DS-00   EB-00   EXIM-01 E-00

FAAE-00 VC-00   FRB-00   H-01     TEDE-00 INR-00   ITC-01

L-00     VCE-00   AC-01   NSAE-00 OMB-01   OPIC-01 PA-00

PM-00   PRS-00   ACE-00   P-00     SP-00   SSO-00   STR-00

USIE-00 FMP-00   PMB-00   DSCC-00 DRL-02   G-00     NFAT-00

SAS-00     /009W

——————A2C84C 221630Z /38

P 221628Z NOV 00

FM AMEMBASSY HARARE

TO SECSTATE WASHDC PRIORITY 7686

INFO DEPT OF TREASURY WASHDC

SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

USDOC WASHDC

NSC WASHDC

C O N F I D E N T I A L SECTION 03 OF 04 HARARE 006566

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC,

TREASURY FOR ED BARBER AND BARAK HOFFMAN

DOC FOR 4510 HENDERSON

NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

STATE PASS USTR FOR ROSA WHITTAKER

E.O. 12958: DECL: 11/22/08

TAGS: EFIN ECON PGOV BEXP ZI

SUBJECT: ZIMBABWE’S 2001 BUDGET; A REALISTIC, AND TOO

CONFIDENTIAL

PAGE 02       HARARE 06566 03 OF 04 221630Z

OPTIMISTIC, EFFORT

COMPUTERIZED CASH BUDGET ACCOUNTING/PAYMENT SYSTEM. THE LAND

AND AGRICULTURE BUDGET INCREASE (FROM ZIM $2.8 TO $4 BILLION)

IS CAUSED BY A SIX-FOLD INCREASE IN THE ALLOCATION OF $1.3

BILLION FOR THE LAND RESETTLEMENT PROGRAM. (THOUGH THE U.S.

$23 MILLION EQUIVALENT FALLS FAR SHORT OF THE FUNDS NEEDED TO

PAY FOR EVEN A SMALL PORTION OF THE ACREAGE TO BE SEIZED, OR

THE INFRASTRUCTURE, INPUTS OR OTHER NEEDS OF THE RESETTLED

LAND-POOR.) THE TRANSPORT AND COMMUNICATION INCREASE OF 63

PERCENT IS CAUSED BY A ZIM $900 MILLION ALLOCATION FOR ROAD

MAINTENANCE, A SPENDING PRIORITY IGNORED IN RECENT YEARS AND

CONSIDERED NECESSARY BY THE FINANCE MINISTER TO KEEP THE

ZIMBABWE’S HIGHWAYS AND ROAD CROSSINGS USABLE BY COMMERCE.

THE VERY LARGE TRANSFER PAYMENT INCREASE OF 72 PERCENT SHOULD

BE NOTED (FROM ZIM $75 TO $130 BILLION), AS IT IS NON-

DISCRETIONARY PAYOUT FOR INTEREST, PENSIONS AND WAR VET

ANNUITIES.

——————

GOVERNMENT REVENUE

——————

¶9. (SBU) TOTAL GOVERNMENT REVENUES ARE PROJECTED TO GROW 55

PERCENT TO ZIM $140.3 BILLION (OR ABOUT U.S. $2.55 BILLION, A

6 PERCENT GROWTH RATE IN U.S. DOLLAR TERMS FROM LAST YEAR)

FROM ZIM $90.2 BILLION. TAXES ON INCOME AND PROFITS, THAT

MAKE UP A LITTLE OVER HALF OF 2001 REVENUE, ARE SLATED TO

GROW BY 71 PERCENT. GIVEN THAT THE GROSS DOMESTIC PRODUCT IS

SIMULTANEOUSLY PROJECTED TO SHRINK BY ABOUT 3 PERCENT IN THE

SAME BUDGET, WE VIEW THE REVENUE TARGET AS BEING EXTREMELY

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PAGE 03       HARARE 06566 03 OF 04 221630Z

OPTIMISTIC, THE MORE SO AS TAXES FOR LOW AND MIDDLE INCOME

EARNERS WERE ADJUSTED DOWNWARD TO BOOST CONSUMER DEMAND.

¶10. (C) THE BUDGET STATES THAT INTERNATIONAL AID GRANTS WILL

BE ZERO. IT ALSO PROJECTS THAT THE DISPOSAL OR PRIVATIZATION

OF STATE-OWNED COMPANIES SHOULD EARN ZIM $22 BILLION (ABOUT

U.S. $400 MILLION) IN 2001. WE QUESTION IF SUCH AN

AGGRESSIVE ASSET SALES PROGRAM CAN BE CARRIED OUT NEXT YEAR,

AND IF THE EXPECTED PROCEEDS TOTAL IS REALISTIC GIVEN THE

CONDITION OF NEARLY ALL OF ZIMBABWE’S PARASTATAL COMPANIES

(BALANCE SHEETS EXTREMELY IN THE RED AND DILAPIDATED/OUTMODED

ASSETS), AND ZIMBABWE’S EXTREMELY POOR TRACK RECORD TO DATE

IN SELLING-OFF STATE ASSETS. ALSO OF NOTE IS THE FACT THAT

THE FINANCE MINISTER APPLIES THE PROCEEDS OF PRIVATIZATION TO

THE PAYDOWN OF GOVERNMENT DEBT. PREVIOUSLY THE GOVERNMENT

HAS ALWAYS STATED THAT THE PROCEEDS WILL GO SOLELY TOWARDS

INDIGENIZATION.

¶11. (C) THE MINISTER ALSO MENTIONED IN HIS SPEECH THAT THE

GOVERNMENT IS OWED “HANDSOME AMOUNTS BY BENEFICIARIES OF

PROGRAMS SUCH AS THE WAR VETERANS COMPENSATION FUND, THE

GOVERNMENT HOUSING SCHEME, THE GRAIN LOAN SCHEME, COMMODITY

IMPORT PROGRAMS AND THE EARLY INDIGENIZATION FUNDS. EFFORTS

WILL BE MADE, THEREFORE, TO COLLECT THESE MONIES.” ALL THE

FOREGOING ARE CASES OF BLATANT LARGE-SCALE THEFT AND

CORRUPTION AT THE HIGHEST LEVELS OF LEADERSHIP, AND WHAT, IF

ANY, PROGRESS IS MADE ON RECOVERY OR PROSECUTION WILL BE

WORTHY OF OBSERVATION. (EMBASSY COMMENT: WE SUSPECT THAT THE

FINANCE MINISTRY’S EFFORTS TO DELVE INTO THE MURKY CORRUPTION

REALM WILL GO NOWHERE IN THE PRESENT ENVIRONMENT. END

COMMENT.) THE LION’S SHARE OF THE REMAINING BUDGET INCOME IS

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PAGE 04       HARARE 06566 03 OF 04 221630Z

DERIVED FROM SALES TAX AND CUSTOMS AND EXCISE DUTIES. THESE

ARE SLATED TO GROW BY 48 PERCENT. AGAIN IN A HIGH INFLATION,

NEGATIVE GDP GROWTH, ENVIRONMENT AND, WITHOUT RATE INCREASES,

WE DO NOT UNDERSTAND HOW SUCH REVENUE GROWTH WILL BE

ACHIEVED. AGAIN, THE IMPLICATION IS THAT A MUCH HIGHER

DEFICIT WILL LIKELY ENSUE.

——————————————— ——

¶12. (C) FUNCTIONAL BREAKDOWN OF 2001 EXPENDITURE:

——————————————— ——

= INTEREST: IS SCHEDULED TO RISE IN PERCENTAGE TERMS FROM 32

PERCENT OF THE BUDGET IN 2000 TO ABOUT 41 PERCENT NEXT YEAR.

THE INTEREST BILL REMAINS NOMINALLY THE SAME DESPITE THE NEED

TO FINANCE A VERY LARGE DEFICIT, BECAUSE THE GOZ INTENDS TO

RESTRUCTURE ITS DEBT BY CONVERTING SOME TO LONG TERM BONDS

(WITH A REVERSE YIELD CURVE). WE QUESTION IF THE ANTICIPATED

SAVINGS WILL BE REALIZED. (THE DEFICIT NEXT YEAR IS PROJECTED

TO BE ABOUT ZIM $83 BILLION, OR ABOUT U.S. 1.6 BILLION AT

CURRENT RATES. AT A NOTIONAL INTEREST RATE OF 50 PERCENT,

THE INTEREST ALONE ON THE NEW DEBT IS ABOUT U.S. $2 MILLION

PER DAY.)

= CIVIL SERVICE COSTS: WAGES, SALARIES AND ALLOWANCES NEARLY

DOUBLED THIS YEAR FROM THE ORIGINAL 2000 BUDGET AMOUNT OF ZIM

CONFIDENTIAL

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ACTION AF-00

INFO LOG-00   NP-00   AID-00   CEA-01   CIAE-00 CTME-00 INL-00

DODE-00 DOTE-00 SRPP-00 DS-00   EB-00   EXIM-01 E-00

FAAE-00 VC-00   FRB-00   H-01     TEDE-00 INR-00   ITC-01

L-00     VCE-00   AC-01   NSAE-00 OMB-01   OPIC-01 PA-00

PM-00   PRS-00   ACE-00   P-00     SP-00   SSO-00   STR-00

USIE-00 FMP-00   PMB-00  DSCC-00 DRL-02   G-00     NFAT-00

SAS-00     /009W

——————A2C864 221630Z /38

P 221628Z NOV 00

FM AMEMBASSY HARARE

TO SECSTATE WASHDC PRIORITY 7687

INFO DEPT OF TREASURY WASHDC

SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

USDOC WASHDC

NSC WASHDC

C O N F I D E N T I A L SECTION 04 OF 04 HARARE 006566

SIPDIS

STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC,

TREASURY FOR ED BARBER AND BARAK HOFFMAN

DOC FOR 4510 HENDERSON

NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

STATE PASS USTR FOR ROSA WHITTAKER

E.O. 12958: DECL: 11/22/08

TAGS: EFIN ECON PGOV BEXP ZI

SUBJECT: ZIMBABWE’S 2001 BUDGET; A REALISTIC, AND TOO

CONFIDENTIAL

PAGE 02       HARARE 06566 04 OF 04 221630Z

OPTIMISTIC, EFFORT

$27.6 BILLION TO ABOUT ZIM $54 BILLION, AFTER PRESIDENT

MUGABE IN JANUARY UNILATERALLY GRANTED RAISES AVERAGING

NEARLY 90 PERCENT TO THE ENTIRE CIVIL SERVICE. (THE 2000

WAGE BILL IS ABOUT U.S. $1 BILLION AT CURRENT EXCHANGE RATES,

OR A PER EMPLOYEE AVERAGE OF U.S. $6,200.) MINISTER MAKONI’S

PLEDGE TO KEEP THE CIVIL SERVICE WAGE BILL TO ABOUT 12

PERCENT OF GDP IN 2001 (V.S. 16.7 PERCENT THIS YEAR) MEANS

THAT THE 2001 WAGE TOTAL WILL BE ABOUT ZIM $65 BILLION. THIS

IS AN INCREASE IN NOMINAL TERMS OF ONLY ABOUT 18 PERCENT, AND

IT IS HIGHLY DOUBTFUL THAT ZIMBABWE’S 161,000 CIVIL SERVANTS,

MANY OF WHOM ARE NEARLY ALL LOYAL RULING PARTY SUPPORTERS,

WILL ACCEPT SUCH A MEAGER SALARY INCREASE IN TIMES OF HIGH

INFLATION.

= CAPITAL SPENDING: CAPITAL EXPENDITURE HAS AGAIN DECLINED

AS A PERCENTAGE OF GOVERNMENT EXPENDITURE TO ONLY 4.6 PERCENT

OF THE TOTAL (IN 1999 IT WAS 12 PERCENT, IN 2000 – 8

PERCENT). THE AMOUNT IS ZIM $10 BILLION, VERSUS THE

REQUIREMENT, AT LEAST ACCORDING TO THE FINANCE MINISTER, OF

$75 BILLION. THE ZIM $10 BILLION IS ALLOCATED AS FOLLOWS:

– $1.3 BILLION FOR LAND RESETTLEMENT PROGRAM (V.S. $200

MILLION IN THE 2000 BUDGET)

– $1 BILLION IN A REVOLVING CREDIT FUND FOR SMALL AND MEDIUM

INDIGENOUS BUSINESSES

– $500 MILLION TO REPAIR CYCLONE ELINE DAMAGE

– $900 MILLION FOR ROADS UPKEEP

– $500 MILLION PROVISION TO MEET CALLED-UP GOZ GUARANTEES OF

PARASTATALS

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PAGE 03       HARARE 06566 04 OF 04 221630Z

——-

COMMENT

——-

¶12. (C) OVERALL, THIS BUDGET IS PROBABLY THE MOST HONEST AND

THOUGHTFUL THAT HAS BEEN TABLED IN ZIMBABWE’S 20 YEARS OF

INDEPENDENCE. A LARGE NUMBER OF CONSTITUENCIES WERE

CONSULTED IN ITS FORMULATION, AND IT ALSO LOOKED CAREFULLY

BACK ON PREVIOUS BUDGETS, RESURRECTING IDEAS CONSIDERED

WORTHWHILE. FOR EXAMPLE, THE CASH BUDGETING SYSTEM WAS FIRST

PROPOSED IN THE 1994 BUDGET BY THEN FINANCE MINISTER

CHAMBATI. IT COURAGEOUSLY OUTLINES THE PRINCIPAL CAUSES, AND

SOME OF THE HARSH CONSEQUENCES, OF THE CURRENT ECONOMIC

CRISIS. ITS ACTION INITIATIVES ARE ALL GOOD. HOWEVER, THE

BUDGET IS ALSO A COMPROMISE, ON BOTH THE POLITICAL AND

ECONOMIC FRONTS. IT CONTAINS A CONSIDERABLE DOSE OF HOPE

OVER EXPERIENCE, IN BOTH ITS REVENUE PROJECTIONS AND IN ITS

BLITHE ASSUMPTION THAT FISCAL DISCIPLINE WILL BECOME

INSTITUTIONALIZED. THE LATTER ASSUMPTION IS A KEY ONE

DESERVING MORE SKEPTICAL ATTENTION. JADED SENIOR CIVIL

SERVANTS TOLD THE ECONOFF THAT WHAT HAS NOT OCCURRED IN 20

YEARS (GOZ FISCAL DISCIPLINE), WILL NOT LIKELY OCCUR IN YEAR

¶21. (WE SUSPECT A SUPPLEMENTAL BUDGET REQUEST WILL COME

FORWARD SOMETIME IN THE THIRD QUARTER NEXT YEAR.)

¶13. (C) THIS IS ESPECIALLY SO GIVEN THE HARD ECONOMIC TIMES,

ONGOING POLITICAL GAMESMANSHIP AIMED AT WINNING VOTER’S

ALLEGIANCE, AND NO EVIDENCE AS YET THAT ZIMBABWE’S HARD TIMES

HAVE BOTTOMED OUT. THE FINANCE MINISTER DOES NOT PREDICT

TURNAROUND UNTIL THE THIRD OR FOURTH QUARTER OF 2001. WE

CONFIDENTIAL

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PREDICT THAT THE NEXT SIX TO TWELVE MONTHS HERE WILL BE THE

WORSE THAT ZIMBABWE, OR FOR THAT MATTER RHODESIA, HAS EVER

EXPERIENCED. THE HARD CURRENCY SHORTAGE WILL WORSEN,

BUSINESS CLOSURES WILL ACCELERATE, WITH ATTENDANT JOB LOSSES

AND SHORTAGES OF BOTH DOMESTIC AND IMPORTED GOODS. IF THE

TURNAROUND DOES OCCUR AS ENVISIONED BY THE FINANCE MINISTER,

THEN IT WILL NOT BE UNTIL 2002 OR 2003 THAT ZIMBABWE WILL

RETURN TO AN ECONOMIC STATE OF HEALTH LAST SEEN IN 1997. IN

OTHER WORDS, FIVE YEARS OF ECONOMIC GROWTH, AT THE VERY

LEAST, HAVE BEEN WIPED OUT BY RECENT ACTIONS OF THE COUNTRY’S

LEADERSHIP. WE ARE KEEPING OUR FINGERS CROSSED THAT THIS

HALF-DECADE BLACKOUT IS NOT EXTENDED FURTHER BY ANY MORE ILL-

CONCEIVED MOVES AND CAMPAIGNS THAT SERVE THE POLITICAL

EXPEDIENCY AND ENTRENCHMENT DESIRES OF THE FEW, AT THE

EXPENSE OF THE PRESENT AND FUTURE WELL-BEING AND SURVIVAL OF

THE MANY, REGARDLESS OF WHAT RACE THEY MAY BE. WE HAVE,

HOWEVER, NO EVIDENCE THAT ECONOMIC COMMON SENSE WILL PREVAIL

OVER THE POLITICALLY EXPEDIENT “FAST-TRACKERS” NOW LEADING

THIS ECONOMY INTO AN ABYSS. END COMMENT.

MCDONALD

CONFIDENTIAL

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