Zimbabwe sees GDP growth at 3.7pc

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SEEING GROWTH: Zimbabwe raised its budgeted 2009 spending and increased wages for state workers.

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Zimbabwe raised its budgeted 2009 spending and increased wages for state workers in a mid-year budget review, saying it planned to issue a government bond for grain purchases.

Finance Minister Tendai Biti told parliament budgeted spending for 2009 increased to $US1.22 billion ($NZ1.9 billion) from $US1 billion, but with the extra funds coming from foreign grants.

"We are not going to have any deficit," he said, but warned that the southern African country's economy remained fragile and its new unity government had to earn international confidence.

A government formed by President Robert Mugabe and his arch-rival Morgan Tsvangirai, who is now prime minister, needed to convince investors that it can survive and will respect human and private property rights.

"The world needs to see that the political agreement that we have is working, that we are respecting its letter and spirit and there will be no policy reversals," he said.

Biti said Zimbabwe's economy was expected to grow by 3.7 percent in 2009, while inflation was seen at 6.4 percent by the end of the year.

"In our previous projections in the budget, we had forecast GDP growth at 2.8 percent, but we now see it at 3.7 percent and inflation at 6.4 percent instead of 6.8 percent by the end of December," he said, adding that government support in farming should see tobacco production doubling to 80 million kgs next year and maize output at 3.5 million tonnes in two years.

Industry experts estimate maize output currently varies between 800,000 and 1.2 million tonnes per year.

Biti also announced plans to issue a bond with a coupon of 7 percent to raise money for grain purchases. He did not provide details but was earlier quoted in a state-owned Herald newspaper as saying the government was looking to raise $US10 million.

He also scrapped a five percent custom duty on industrial capital goods, reduced import taxes on raw materials to 10 percent from 15 and extended by another six months duty free imports on basic foodstuffs.

Analysts had hoped Biti would cut some taxes as part of reforms by a new unity government between President Robert Mugabe and his old rival Morgan Tsvangirai, now prime minister, to lure foreign investors to the battered economy.

Biti said the government would introduce a 3 percent royalty on gold miners but did not give details.

The unity government says it needs about $US10 billion in foreign aid to help repair an economy which last year suffered an inflation rate of over 230 million percent.

But many Western donors say they will only give massive support needed to rebuild pot-holed roads, bare hospitals, dilapidated schools and ease 90 percent unemployment when the new administration has implemented radical reforms.

Biti said he would soon introduce proposals in parliament to reform Zimbabwe's central bank and to retire millions of dollars of debt it had incurred in financing government programmes and when it raided some private foreign currency bank accounts.

Biti said Zimbabwe dollar deposits and cash left useless by the use of multiple currencies would be converted into US dollars in the coming weeks at a cost of about $US6 million.

The Zimbabwe currency would only be reintroduced when key economic sectors - farming, mining, manufacturing and tourism -have regained their capacity which had collapsed by about 70 in 10 years of crisis.

In January, Harare lifted a ban on the use of foreign currency to stem hyperinflation that had rendered the Zimbabwe dollar almost worthless.

Biti said the IMF estimates that Zimbabwe's inflation had hit a stratospheric 500 billion percent by December 2008, and government had to fight to keep it under control.

"We are not out of the woods, but we have to continue working hard so that we don't slide back," he said.

- Reuters