Zimbabwe budget deficit widens sharply on runaway government spending




HARARE (Reuters) – Zimbabwe’s budget deficit will soar to $1.82 billion or 11.2 percent of GDP this year from an initial target of $400 million, new Finance Minister Ignatius Chombo told parliament on Thursday.

President Robert Mugabe’s government is struggling to contain spending, with more than 90 percent of the budget going towards paying salaries for civil servants, which analysts say is too high for the struggling economy.

Last month, former finance minister Patrick Chinamasa said the government planned to cut the deficit by half next year to 4 percent of GDP, an ambitious goal at a time when the country is expected to hold a presidential vote.

Chombo, who was appointed head of the finance ministry last month, said government spending would accelerate beyond the initial target of $4.1 billion this year.

“This would raise the Budget deficit for the full year from $400 million to $1.82 billion, mainly financed through Treasury bills and recourse to overdraft at the Reserve Bank,” Chombo said in a speech to legislators at a retreat in Victoria Falls.

“Honourable Members will agree that this is not sustainable, and is undesirable,” added Chombo without saying how the government intended to put brakes on runaway spending.

Chombo repeated previous finance ministry projections that economic growth would slowdown to 3 percent next year from 3.7 percent in 2017.

Analysts say government’s borrowing from domestic banks could ultimately fuel inflation, which Chombo said could reach 2.5 percent next year. He warned of a build-up in inflationary pressures in the medium term.

Economic analysts fear that the unraveling of the relative financial stability of the last eight years due to acute foreign exchange shortages that have led to sharp price increases could see Zimbabwe returning to hyperinflation.