Zimbabwe’s budget deficit rises as a result of a pre-election splurge

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Reuters reports that Treasury documents showed that Zimbabwe’s budget deficit rose to $1.3 billion in the first half of 2018, a figure which is nearly five times the initial target after government spending spiralled ahead of an election in July 2018.

Before the election on July 31, President Emmerson Mnangagwa’s government distributed free seed and fertilisers to rural voters, upgraded roads and dams, and injected fresh capital into struggling government-owned companies.

Zimbabwe Treasury’s quarterly report showed the government had overshot its budget deficit of $266 million after spending $616 million on farm inputs for the rural poor. To resolve the situation, the government resorted to issuing treasury bills to plug the deficit and cover massive public wage spending, which account for more than 70 percent of the budget.

Mthuli Ncube, the new finance minister noted that borrowing through treasury bills and an overdraft with the country’s central bank were feeding a growing fiscal deficit that could overwhelm the financial system. Mnangagwa’s government is under a lot of pressure to deliver on promises to revive the economy.

The Treasury said the economy was now expected to grow by 6.3 percent in 2018, against an initial target of 4.5 percent, as a result of a better performance in agriculture and mining.

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