Governor, Reserve Bank of Zimbabwe, 4 December, 2008
1. Introduction and background
1.1 On the 3rd and 4th of December, 2008, the Reserve Bank of Zimbabwe held very cordial and fruitful meetings with the Zimbabwe Congress of Trade Unions (ZCTU), led by Mr. L. Matombo, the President of ZCTU and Mr. W. Chibhebhe, the Secretary General of ZCTU, along with other Senior Executives in the ZCTU.
1.2 The nature of the ZCTU mandate and the issues they raised during the discussions were National in nature, representing the interests of the generality of all workers and users of cash in general.
1.3 With the Reserve Bank having presented to the ZCTU the current limitations in terms of currency printing due to the adversity of sanctions currently being imposed against the country, it was agreed on the 3rd of December, 2008 that the ZCTU prepares scenarios and suggestions on possible remedial measures that would meet the interests of the workers.
1.4 The ZCTU was to also consider their proposals in the context of factual current average salaries and wage levels, as well as the employment numbers.
1.5 The Reserve Bank is pleased to report that the ZCTU worked swiftly to come up with proposals which enabled us to make informed discussions and decisions.
2. The agreed framework
2.1 Having carefully assessed the very genuine representations by the ZCTU in terms of the plight of the workers, the sick and all the other users of cash; and this within the context of full appreciation of the constrained cash supply chain due to the sanctions against Zimbabwe, the Reserve Bank is pleased to unveil the following jointly agreed positions between the Reserve Bank and the ZCTU, who in their representations clarified that they were representing not just their constituency, but all the other users of cash in general.
The agreed positions
(a) That with effect from Friday, the 12th of December, 2008, the cash withdrawal limit for individuals has been increased from $100 million per week to $500 million per week.
Company withdrawal limits shall remain at $50 million, per week given that workers’ needs have been catered for.
(b) That with effect from Friday the 19th of December, 2008, each worker can withdraw up to $10 billion per month, against presentation of a pay-slip which shall be endorsed at the bank to prevent abuse of the facility through repeated withdrawals.
(c) That with effect from the 12th of January, 2009, all workers will be able to fully encash their full salaries, without any limit upon presentation of a bona-fide, verifiable pay-slip, which shall be stamped at the bank to avoid repetitive roundtripping.
(d) That over the outlook period, the cash supply framework will be amicably discussed between the Reserve Bank and Stakeholders on an ongoing basis, so as to promote information symmetries and full appreciation of the realities on the ground on either side.
Measures against abuse
2.2 The Reserve Bank has noted with grave concern the tendency by some banks to allow their corporate and individual clients to violate the cash withdrawal frameworks, assisted by bank management and bank employees themselves.
2.3 Accordingly, therefore, as was fore-warned, any bank found violating Central Bank regulations will meet with severe and swift remedial measures.
Indiscipline at CFX Bank
2.4 As part of its enhanced surveillance programme, the Reserve Bank of Zimbabwe now has capacity to trail cash movements from the Reserve Bank right up to each bank’s branch networks through an elaborate Currency Serial Number Monitoring System.
2.5 On the afternoon of Wednesday, the 3rd of December, 2008, banking institutions were issued with a total of $80 trillion to prepare their systems for the increased cash withdrawal limits beginning the morning of the 4th of December 2008, through issuance of new notes.
2.6 Among those who got cash was CFX Bank, which got a total of $900 billion on the 3rd of December, 2008 for issuance to their depositors the next day, the 4th of December, 2008.
2.7 At exactly 9:30 p.m. on the 3rd of December, 2008, the Reserve Bank’s tracking system picked up that the serialized notes issued to CFX Bank had mysteriously found their way into the market, notwithstanding the following facts:
(a) It was illegal to have new notes issued into the market prior to the date of the launch.
(b) There was no way the money issued to CFX Bank could have gone into the market through any other channel other than the bank’s own systems since the delivery of cash to CFX was done to meet the needs for the next day. No individual client nor company could have legally made a withdrawal of the new notes during the banking hours of 3 December, 2008.
The facts
(a) CFX Bank got new notes in the following series:
$10 million notes: Serials; AA0207001 to AA0217000
Amount: $100 billion
$50 million notes: Serials;AA7363001 to AA7377000
Amount: $700 billion
$100 million notes: Serials; AA0079001 to AA0080000
Amount: $100 billion
Global issue: $900 billion (signed off by CFX on collection under voucher number 01408 at 1220 hours, 3 December, 2008.
(b) At 9:30 p.m. on the 3rd of December, 2008, serialized new notes off the CFX withdrawal from the Central Bank was already in the market.
The following notes are examples of what was retrieved from the market at 10:30 p.m. on the 3rd of December, 2008 under the Reserve Bank’s enhanced surveillance system:
$50 million notes:
Serial; AA7371182;
Serial; AA7371195;
Serial; AA7371198;
Serial; AA7371199; and
Serial; AA7371200.
(c) The protected informant who worked with the Reserve Bank throughout the night, has reported that a total of $260 billion was off-loaded by CFX in the night of 3 December, 2008, buying foreign exchange. It is left to fellow Zimbabweans to judge what sort of damage to the economy and the welfare of the people such behaviour is causing.
(d) The Reserve Bank is in possession of the actual notes that were issued into the parallel market, exactly pinning down CFX Bank as the culprit, they have absolutely no excuse or way out.
2.8 Accordingly, therefore, the following measures have been adopted:
3. Dissolution of the CFX Bank Board of Directors and removal of top management
3.1 With effect from 5 December, 2008, the entire Board of Directors of CFX Bank has been dissolved, and none of them can serve again on a bank Board.
3.2 The following persons are, therefore no longer fit and proper to work in a bank or to sit on any banking institution’s Board for the next 5 years beginning 5 December, 2008.
The dissolved CFX Bank Limited Board of Directors
Mr. P. Chitando – Chairman
Mr. J.S. Brown – Director
Mr. E. Shadaya – Director
Mr. J.N. Dhliwayo – Director
Mr. M. Chingwena – Director
Mr. B.C. Hofman – Director
Mr. I. Chagonda – Director
Mr. P. Alichindamba – Director
Mr. A. Kandlela – Director
Unfit and improper management
3.3 The following persons in CFX Bank have been duly declared unfit and improper to work in any banking institution in Zimbabwe for the next 5 years beginning 5 December, 2008:
Mr. O. Mukumba - Managing Director
Mrs. P.T. Ndoro – Company Secretary
Mrs. B. Kadira – Head of Retail
Mrs. W. Chidziwo – Head Treasury and Int. Banking
Mrs. P. Mureya – Head of Finance & Administration
Mrs. C. Dangarembga – Head, Risk Management
Mrs. C. Saungweme – Head of Audit
3.4 The shareholders of CFX Bank are called upon to swiftly re-organise their institution’s management and corporate governance systems to avoid further improper conduct.
3.5 It should be noted also that the requisite due diligence procedures and clearance vetting are to be followed for all the needful appointments.
3.6 The Reserve Bank no longer has appetite for curatorships.
Another warning to all banks
3.7 The entire banking sector is once again forewarned to stop any fraudulent activities.
3.8 Where banks literally off-load bulk cash meant for depositors onto the parallel market, as what CFX Bank was caught doing, the blame is conveniently put on the Reserve Bank.
3.9 Others have been alleging that there is “Gono’s money bag” doing the rounds with cash yet it is unscrupulous banking institutions, who instead of being the trusted custodians of the public’s funds, abuse their status and become the agents of economic destruction.
3.10 The banking laws of the country do not allow this.
The holiday season
3.11 The Central Bank has cancelled all annual leave for its Management and Staff and will leave no stone unturned to put a stop to any acts of indiscipline in the banking sector.
3.12 Each bank must fully account for all cash withdrawn from the Reserve Bank right up to the actual branch, by serial numbers as directed on 22 December, 2007 when each bank CEO was given a specific letter of instruction preparing for the on-going currency tracking system on all new notes issued.
Prices of goods and services
3.13 The Reserve Bank also appeals to sellers of goods and services to please have a heart and protect the interest of consumers.
3.14 We have noted sadly that almost every time new currency denominations are introduced or when workers’ earnings are introduced, prices are increased unjustifiably.
3.15 As a Central Bank, we condemn such practices in the strongest of terms.
3.16 We call upon all Producer Associations to introspect and self-police their membership in the interest of protecting the welfare of workers, the sick and other vulnerable groups in our economy.
Thank you.
Dr. G. Gono, Governor, Reserve Bank of Zimbabwe
Wednesday, December 17, 2008
60 Hexillion
PRESS STATEMENT ON THE
RAMPANT FRAUDLENT ACTIVITIES ON
THE STOCK EXCHANGE,
THE INSURANCE AND PENSION FUND INDUSTRIES
AND THE BANKING SECTOR
BY DR. G. GONO GOVERNOR RESERVE BANK OF ZIMBABWE
20 NOVEMBER, 2008
1. INTRODUCTION AND BACKGROUND
1.1 Fellow Zimbabweans, this Statement comes at a
time when the ugly heads of indiscipline,
corruption, fraudulent activities and underhand
manipulation of our money and capital markets
have reached epic proportions that are
threatening to wipe the face of our economy.
1.2 As a Nation, it is high time that we put a stop to
these vices, as the victims are the hard working
workers going for months without access to their
salaries at banks; the sick and the ill who cannot
get treatment at hospitals and clinics due to lack
of cash; the commuting public who fail to move
from one place to the other due to rampant
increases in transport costs; the school children
who are having to go to school on empty
stomachs due to the steep increases in food
prices; and all the other disadvantaged members
of society who can barely make ends meet under
the prevailing harsh economic conditions.
1.3 For a long time now, it had become fashionable
to apportion blame to the Reserve Bank as the
soft target.
1.4 Media campaigns have been mobilized to vilify
and condemn the Reserve Bank.
1.5 Others have planned smear campaigns through
fliers that argued that the Reserve Bank and
Governor Gono in his personal capacity is to
blame for the current hardships.
1.6 Indeed, others have spent hours, days, weeks and
months investing on anti-Reserve Bank
programmes meant to defeat everything that the
Central Bank stands for.
1.7 In the midst of these wide-ranging attacks, the
Central Bank remained focused and determined
to dig deep and wide in identifying the root
causes of the current difficulties and the
suffering of the majority of Zimbabweans.
1.8 Today, Ladies and gentlemen, I am pleased to
report that the invisible forces of destruction
have been unmasked, marking a turning point
chapter when the fraudulent and speculative
winds are cast into the inferno of extinction.
1.9 In this Statement, ladies and gentlemen, the
following facts will be laid bare:
(a) That the Zimbabwe Stock Exchange had become
the most devastating vehicle of economic
destruction;
(b) That some players in the banking sector had
relapsed into the retrogressive mode of lax
controls and risk management systems, leading
to their officials engaging in corrupt activities;
(c) That the current cash shortages are a combined
effect of the rogue trading on the Zimbabwe
Stock Exchange and the sanctions imposed
against the country; and
(d) That the Insurance Companies and Pension Fund
Industries have stroked the flames of financial
instability through blatant flouting of the statutes
that govern their operations.
2. ROGUE TRADING ON THE ZIMBABWE
STOCK EXCHANGE
2.1 As Monetary Authorities, our hearts are heavy
that contrary to the noble purpose for which the
ZSE was created; which is that of acting as a
progressive vehicle for the mobilization of
productive capital, the ZSE has literally galloped
astray, in the process creating obscene paper
wealth that is causing havoc in the economy.
2.2 To the doubtful, the following facts clearly
demonstrate how the Zimbabwe Stock Exchange
had become the epicenter of economic
destruction:
(a) The ZSE allowed some stock brokers to falsely
bid up share prices, when in fact the same stock
brokers had absolutely no money to pay for the
shares. The end result has been that some
counters grew by as high as 2 million percent in
a single day;
(b) Where share prices were rising at the
ridiculously bloated rates, what that effectively
meant was that someone could work up with no
penny at the bank, but end the day a multitrillionnaire.
The next morning, the false wealth
so created would show up as high demand for
cash, and all this being blamed on the Central
Bank;
(c) The Stock Exchange was deliberately indexing
the entire stock market to the spurious Old
Mutual share prices. The whole economy was
then being priced via the Old Mutual rate whose
share price movements had no relationship with
economic fundamentals, let alone actual
corporate performance of Old Mutual itself.
(d) The Zimbabwe Stock Exchange has been, and
continues to operate with no strict rules and
regulations that prohibit rogue behaviour. On
numerous occasions, company share prices rose
astronomically with absolutely no actual
volumes trading;
(e) Some stock brokers were buying shares cheap in
the morning call overs then drive up prices
before off-loading the same shares on the same
day at inflated prices; and
(f) The Stock Exchange did not rule a few
aggressive Stock Brokers out of order, when they
stampeded specific counters up with the sole
intention of amassing false wealth.
2.3 Some argued that the developments on the ZSE
were a result of excess money supply.
2.4 To this, the facts are that all the Reserve Bank’s
quasi-fiscal operations between 1 December,
2003 and 20 November, 2008 combined are
under 0,01% of the paper money created by
the Zimbabwe Stock Exchange.
3. FRAUDULENT ACTIVITIES AT SOME BANKS
3.1 As Monetary Authorities, we would like to
firstly thank and commend Stanbic Bank
Management for their vigilance, honesty and
deep spirit of cooperation with Regulators on
fighting Money Laundering and fraud.
3.2 Through our collaborative work with them, we
have managed to unearth the massive fraudulent
activities that have been taking place.
3.3 It is utterly disappointing that other banks
continue to sweep fraudulent activities under the
carpet.
3.4 Between the 10th and the 20th of November,
2008, total fraudulent cheques we intercepted in
the clearing system had risen to $60 hexillion
($60,000,000,000,000,000,000,000).
3.5 The tragic reality is that this $60 hexillion had
infact been deployed on the Zimbabwe Stock
Exchange, bidding up share prices; with some
going onto the foreign exchange parallel market.
3.6 The $60 hexillion, had, therefore, become
artificial money supply created through
fraudulent activities.
3.7 This clearly dwarfs the $1.1 hexillion making up
100% of all the quasi-fiscal operations the
Reserve Bank engaged in over the past 5 years.
3.8 Quite clearly, therefore, the fraudulent
collaboration between some banks, stock brokers
and the Zimbabwe Stock Exchange have become
the most inflationary vehicles.
4. REMEDIAL MEASURES
4.1 As the Central Bank, and in full conformity with
the mandate bestowed upon us by the Reserve
Bank Act; we have taken the following measures
to swiftly deal with these destructive forces.
The measures:
(a) The Reserve Bank shall not give unsecured
accommodation to any bank coming for
assistance. Any bank that fails to secure its
intended accommodation will be allowed to go
under. As Monetary Authorities, we have
repeatedly said that we no longer have the
appetite for curatorships.
(b) In line with (a) above, today, one commercial
bank has been ejected out of the clearing house
for failure to fund their clearing obligations. This
ejection will be followed by a full targeted
supervision to assess the bank’s overall liquidity
and solvency status, as well as the competencies
of their Management and Board of Directors;
(c) Any company or stock-broking firm which
writes cheques that are not funded will have their
accounts frozen and closed. Such company or
stock-broking entities will be automatically
blacklisted and cannot operate any bank accounts
in Zimbabwe;
BLACKLISTED NAMES
• Accordingly, as of today, the 20th of November,
2008, the following individuals and companies
had their accounts frozen and they have been
blacklisted, meaning that they cannot operate any
bank accounts in Zimbabwe with effect from 21 November, 2008:
(i) EFE Securities and the Directors of EFE
Securities
14
(ii) Lynton Edwards Securities and the Directors of
Lynton Edwards Securities;
(iii) Mr. Mike Mudondo;
(iv) Winfields Investments and the Directors of
Winfields Investments;
(v) Mr. George Chimhini;
(vi) Hardon George (Pvt) Limited and the Directors
of Hardon George (Pvt) Ltd;
(vii) Sweet Africa Enterprises and the Directors of
Sweet Africa Enterprises;
(viii) Seizler Enterprises (Pvt) Ltd and the Directors of
Seizler Enterprises;
(ix) Mrs. Chiota Masiwa;
(x) Arkmate Enterprises and the Directors of
Arkmate Enterprises;
(xi) Mr. Taurai Albert Rukwata
(xii) Mrs. Batsirayi Linda Mutyambizi
(xiii) Raymate Investments (Pvt) Ltd and the Directors
of Raymate Investments (Pvt) Ltd;
15
(xiv) Harvilink Enterprises and the Directors of
Harvilink Enterprises;
(xv) Luvial Enterprises and the Directors of Luvial
Enterprises;
(xvi) Dolpin Trading P/L and the Directors of Dolpin
P/L;
(xvii) Tariro Chipfuwamuti;
(xviii) Gerald M. Muvuti;
(xix) Tafadzwa Matipano
(xx) Felix Bvute
(d) All trades on the Zimbabwe Stock Exchange are
to be supported by confirmed bank balances,
signed off by each bank’s CEO;
(e) Any bank where bank cheques are fraudulently
drawn with effect from 20 November, 2008, will
automatically loose its trading licence and the
CEO charged with criminality.
(f) In cases where a bank does not report suspicious
transactions and the transactions turn out to be
fraudulent and/or money laundering proceeds,
that bank’s entire management and board of
directors will be deemed unfit and improper to
manage, oversee or preside over any banking
institution board in Zimbabwe.
(g) In line with the stipulations on the Zimbabwe
Stock Exchange, any Stock Broking company
that fails to settle its obligations on the Stock
Exchange will be stuck off the ZSE register and
will also not be allowed to operate any bank
account in Zimbabwe.
5. IMPACT AND CASUALTIES
5.1 The above measures are expected to swiftly
correct the madness that had gripped our stock
exchange market.
5.2 As Monetary Authorities, we therefore, wish to
advise the corporate sector, as well as individuals
to please tread carefully in managing their
money and capital markets asset portfolios.
5.3 Continuation of the current irrational exuberance
will be at each individual or each company’s
peril, as no doubt the chickens are coming home
to roost.
5.4 The era of financial sector fraudulent activities
and the ZSE honey moon is over.
5.5 As Monetary Authorities, we are confident that
through the restoration of discipline and zero
tolerance against fraudulent trading and
corruption in our financial markets, the current
hardships to the public in respect of cash
shortages and rampant price increases will be
normalized in the not too distant future.
5.6 The Reserve Bank is working flat out to ensure
that the cash situation is resolved ahead of the
imminent festive season.
5.7 Whilst this is being done, the Reserve Bank calls
upon all Public Utilities such as ZESA, Tel-One,
ZINWA and Local Authorities to accept cheques
as legitimate forms of payment, without
prejudice to the bill-payers.
5.8 Members of the public are called upon to report
to the Reserve Bank Public Utilities that refuse
cheques as means of payment.
5.9 As Monetary Authorities, we once again remind
the Nation that sanctions are a reality that is
affecting everyone of us through the perennial
cash queues.
5.10 The Reserve Bank cannot miraculously stretch
existing National Printing capacity beyond the
fixed physical levels that are in place over the
short term.
5.11 It is for this reason that as a Nation, we must all
speak with one voice against the illegal
sanctions.
Thank you.
DR G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
20 November, 2008
RAMPANT FRAUDLENT ACTIVITIES ON
THE STOCK EXCHANGE,
THE INSURANCE AND PENSION FUND INDUSTRIES
AND THE BANKING SECTOR
BY DR. G. GONO GOVERNOR RESERVE BANK OF ZIMBABWE
20 NOVEMBER, 2008
1. INTRODUCTION AND BACKGROUND
1.1 Fellow Zimbabweans, this Statement comes at a
time when the ugly heads of indiscipline,
corruption, fraudulent activities and underhand
manipulation of our money and capital markets
have reached epic proportions that are
threatening to wipe the face of our economy.
1.2 As a Nation, it is high time that we put a stop to
these vices, as the victims are the hard working
workers going for months without access to their
salaries at banks; the sick and the ill who cannot
get treatment at hospitals and clinics due to lack
of cash; the commuting public who fail to move
from one place to the other due to rampant
increases in transport costs; the school children
who are having to go to school on empty
stomachs due to the steep increases in food
prices; and all the other disadvantaged members
of society who can barely make ends meet under
the prevailing harsh economic conditions.
1.3 For a long time now, it had become fashionable
to apportion blame to the Reserve Bank as the
soft target.
1.4 Media campaigns have been mobilized to vilify
and condemn the Reserve Bank.
1.5 Others have planned smear campaigns through
fliers that argued that the Reserve Bank and
Governor Gono in his personal capacity is to
blame for the current hardships.
1.6 Indeed, others have spent hours, days, weeks and
months investing on anti-Reserve Bank
programmes meant to defeat everything that the
Central Bank stands for.
1.7 In the midst of these wide-ranging attacks, the
Central Bank remained focused and determined
to dig deep and wide in identifying the root
causes of the current difficulties and the
suffering of the majority of Zimbabweans.
1.8 Today, Ladies and gentlemen, I am pleased to
report that the invisible forces of destruction
have been unmasked, marking a turning point
chapter when the fraudulent and speculative
winds are cast into the inferno of extinction.
1.9 In this Statement, ladies and gentlemen, the
following facts will be laid bare:
(a) That the Zimbabwe Stock Exchange had become
the most devastating vehicle of economic
destruction;
(b) That some players in the banking sector had
relapsed into the retrogressive mode of lax
controls and risk management systems, leading
to their officials engaging in corrupt activities;
(c) That the current cash shortages are a combined
effect of the rogue trading on the Zimbabwe
Stock Exchange and the sanctions imposed
against the country; and
(d) That the Insurance Companies and Pension Fund
Industries have stroked the flames of financial
instability through blatant flouting of the statutes
that govern their operations.
2. ROGUE TRADING ON THE ZIMBABWE
STOCK EXCHANGE
2.1 As Monetary Authorities, our hearts are heavy
that contrary to the noble purpose for which the
ZSE was created; which is that of acting as a
progressive vehicle for the mobilization of
productive capital, the ZSE has literally galloped
astray, in the process creating obscene paper
wealth that is causing havoc in the economy.
2.2 To the doubtful, the following facts clearly
demonstrate how the Zimbabwe Stock Exchange
had become the epicenter of economic
destruction:
(a) The ZSE allowed some stock brokers to falsely
bid up share prices, when in fact the same stock
brokers had absolutely no money to pay for the
shares. The end result has been that some
counters grew by as high as 2 million percent in
a single day;
(b) Where share prices were rising at the
ridiculously bloated rates, what that effectively
meant was that someone could work up with no
penny at the bank, but end the day a multitrillionnaire.
The next morning, the false wealth
so created would show up as high demand for
cash, and all this being blamed on the Central
Bank;
(c) The Stock Exchange was deliberately indexing
the entire stock market to the spurious Old
Mutual share prices. The whole economy was
then being priced via the Old Mutual rate whose
share price movements had no relationship with
economic fundamentals, let alone actual
corporate performance of Old Mutual itself.
(d) The Zimbabwe Stock Exchange has been, and
continues to operate with no strict rules and
regulations that prohibit rogue behaviour. On
numerous occasions, company share prices rose
astronomically with absolutely no actual
volumes trading;
(e) Some stock brokers were buying shares cheap in
the morning call overs then drive up prices
before off-loading the same shares on the same
day at inflated prices; and
(f) The Stock Exchange did not rule a few
aggressive Stock Brokers out of order, when they
stampeded specific counters up with the sole
intention of amassing false wealth.
2.3 Some argued that the developments on the ZSE
were a result of excess money supply.
2.4 To this, the facts are that all the Reserve Bank’s
quasi-fiscal operations between 1 December,
2003 and 20 November, 2008 combined are
under 0,01% of the paper money created by
the Zimbabwe Stock Exchange.
3. FRAUDULENT ACTIVITIES AT SOME BANKS
3.1 As Monetary Authorities, we would like to
firstly thank and commend Stanbic Bank
Management for their vigilance, honesty and
deep spirit of cooperation with Regulators on
fighting Money Laundering and fraud.
3.2 Through our collaborative work with them, we
have managed to unearth the massive fraudulent
activities that have been taking place.
3.3 It is utterly disappointing that other banks
continue to sweep fraudulent activities under the
carpet.
3.4 Between the 10th and the 20th of November,
2008, total fraudulent cheques we intercepted in
the clearing system had risen to $60 hexillion
($60,000,000,000,000,000,000,000).
3.5 The tragic reality is that this $60 hexillion had
infact been deployed on the Zimbabwe Stock
Exchange, bidding up share prices; with some
going onto the foreign exchange parallel market.
3.6 The $60 hexillion, had, therefore, become
artificial money supply created through
fraudulent activities.
3.7 This clearly dwarfs the $1.1 hexillion making up
100% of all the quasi-fiscal operations the
Reserve Bank engaged in over the past 5 years.
3.8 Quite clearly, therefore, the fraudulent
collaboration between some banks, stock brokers
and the Zimbabwe Stock Exchange have become
the most inflationary vehicles.
4. REMEDIAL MEASURES
4.1 As the Central Bank, and in full conformity with
the mandate bestowed upon us by the Reserve
Bank Act; we have taken the following measures
to swiftly deal with these destructive forces.
The measures:
(a) The Reserve Bank shall not give unsecured
accommodation to any bank coming for
assistance. Any bank that fails to secure its
intended accommodation will be allowed to go
under. As Monetary Authorities, we have
repeatedly said that we no longer have the
appetite for curatorships.
(b) In line with (a) above, today, one commercial
bank has been ejected out of the clearing house
for failure to fund their clearing obligations. This
ejection will be followed by a full targeted
supervision to assess the bank’s overall liquidity
and solvency status, as well as the competencies
of their Management and Board of Directors;
(c) Any company or stock-broking firm which
writes cheques that are not funded will have their
accounts frozen and closed. Such company or
stock-broking entities will be automatically
blacklisted and cannot operate any bank accounts
in Zimbabwe;
BLACKLISTED NAMES
• Accordingly, as of today, the 20th of November,
2008, the following individuals and companies
had their accounts frozen and they have been
blacklisted, meaning that they cannot operate any
bank accounts in Zimbabwe with effect from 21 November, 2008:
(i) EFE Securities and the Directors of EFE
Securities
14
(ii) Lynton Edwards Securities and the Directors of
Lynton Edwards Securities;
(iii) Mr. Mike Mudondo;
(iv) Winfields Investments and the Directors of
Winfields Investments;
(v) Mr. George Chimhini;
(vi) Hardon George (Pvt) Limited and the Directors
of Hardon George (Pvt) Ltd;
(vii) Sweet Africa Enterprises and the Directors of
Sweet Africa Enterprises;
(viii) Seizler Enterprises (Pvt) Ltd and the Directors of
Seizler Enterprises;
(ix) Mrs. Chiota Masiwa;
(x) Arkmate Enterprises and the Directors of
Arkmate Enterprises;
(xi) Mr. Taurai Albert Rukwata
(xii) Mrs. Batsirayi Linda Mutyambizi
(xiii) Raymate Investments (Pvt) Ltd and the Directors
of Raymate Investments (Pvt) Ltd;
15
(xiv) Harvilink Enterprises and the Directors of
Harvilink Enterprises;
(xv) Luvial Enterprises and the Directors of Luvial
Enterprises;
(xvi) Dolpin Trading P/L and the Directors of Dolpin
P/L;
(xvii) Tariro Chipfuwamuti;
(xviii) Gerald M. Muvuti;
(xix) Tafadzwa Matipano
(xx) Felix Bvute
(d) All trades on the Zimbabwe Stock Exchange are
to be supported by confirmed bank balances,
signed off by each bank’s CEO;
(e) Any bank where bank cheques are fraudulently
drawn with effect from 20 November, 2008, will
automatically loose its trading licence and the
CEO charged with criminality.
(f) In cases where a bank does not report suspicious
transactions and the transactions turn out to be
fraudulent and/or money laundering proceeds,
that bank’s entire management and board of
directors will be deemed unfit and improper to
manage, oversee or preside over any banking
institution board in Zimbabwe.
(g) In line with the stipulations on the Zimbabwe
Stock Exchange, any Stock Broking company
that fails to settle its obligations on the Stock
Exchange will be stuck off the ZSE register and
will also not be allowed to operate any bank
account in Zimbabwe.
5. IMPACT AND CASUALTIES
5.1 The above measures are expected to swiftly
correct the madness that had gripped our stock
exchange market.
5.2 As Monetary Authorities, we therefore, wish to
advise the corporate sector, as well as individuals
to please tread carefully in managing their
money and capital markets asset portfolios.
5.3 Continuation of the current irrational exuberance
will be at each individual or each company’s
peril, as no doubt the chickens are coming home
to roost.
5.4 The era of financial sector fraudulent activities
and the ZSE honey moon is over.
5.5 As Monetary Authorities, we are confident that
through the restoration of discipline and zero
tolerance against fraudulent trading and
corruption in our financial markets, the current
hardships to the public in respect of cash
shortages and rampant price increases will be
normalized in the not too distant future.
5.6 The Reserve Bank is working flat out to ensure
that the cash situation is resolved ahead of the
imminent festive season.
5.7 Whilst this is being done, the Reserve Bank calls
upon all Public Utilities such as ZESA, Tel-One,
ZINWA and Local Authorities to accept cheques
as legitimate forms of payment, without
prejudice to the bill-payers.
5.8 Members of the public are called upon to report
to the Reserve Bank Public Utilities that refuse
cheques as means of payment.
5.9 As Monetary Authorities, we once again remind
the Nation that sanctions are a reality that is
affecting everyone of us through the perennial
cash queues.
5.10 The Reserve Bank cannot miraculously stretch
existing National Printing capacity beyond the
fixed physical levels that are in place over the
short term.
5.11 It is for this reason that as a Nation, we must all
speak with one voice against the illegal
sanctions.
Thank you.
DR G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
20 November, 2008
HARARE 2003 NATIONAL BUDGET STATEMENT
THE 2004 NATIONAL BUDGET STATEMENT
i) MOTION
Mr. Speaker Sir,
1 I move that leave be granted to bring in a Bill to make provisions in connection with revenues and expenditures of the Republic of Zimbabwe and to make provision for
matters ancillary and incidental to this purpose.
ii) INTRODUCTION
2 Mr Speaker Sir, the country has once more experienced another year of severe socioeconomic hardships. The sanctions imposed on the country have worsened the
economic environment. These hardships have manifested themselves in rising inflation,
erosion of real incomes, critical foreign exchange shortages, decline in savings and
investment, capacity under-utilisation, company closures and high unemployment. The
HIV/AIDS pandemic has compounded the situation. As a result, the economy is
estimated to contract by 13.2% this year and inflation to peak at about 600% by
December 2003.
3 Our economy’s performance vis-à-vis that of the region as well as the rest of the world, limits Zimbabwe’s capacity to play its role in the global economy and effectively participate in international relations.
4 World economic output has been on an upward trend and is estimated to grow by 3.2%
in 2003. Higher growth of 4.1% is projected for 2004. Consistent with these positive
growth rates, inflation remained very low, at about 1.6% in 2003 and is projected at
1.8% in 2004.
5 In the rest of the SADC countries, positive performances are also being experienced, with average growth rates of 2.6% and inflation of 15.3% in 2003, with a further decline to 8.1% in 2004.
6 Rapid development of informal and parallel markets for both goods and foreign exchange are entrenching a growing shadow economy, with rising incidences of rampant
corruption in both the private and public sectors. Work and business ethics are fast
disappearing as people aspire and search for overnight wealth.
7 Uneconomic pricing, management deficiencies and operational inefficiencies of some of our public enterprises have also negatively impacted on the budget and hampered their contribution to economic recovery.
8 Mr Speaker Sir, inspite of all the difficulties I have alluded to, the economy remains resilient. Our nation possesses all the ingredients to tackle our challenges head-on, for a successful economic turn-around. These ingredients include, among others, skilled human resources, developed infrastructure, and abundant wildlife and mineral resources.
The ushering in of an agrarian culture in our country, which has given our people a new sense of empowerment, will provide an anchor for a broad-based economic revival.
9 It is, therefore, critical that the 2004 Budget addresses the challenges I have just highlighted. Specifically, focus should be on containing inflation, increasing the capacity to generate more foreign currency, supporting the productive and export sectors, enhancing conditions for increased private sector involvement, improving infrastructure,job creation, economic empowerment and the delivery of social services. Measures will also be undertaken to enhance the efficient use of public resources and the elimination of corruption in both the public and private sectors.
iii) THE PRIORITIES AND POLICY THRUST OF THE 2004 BUDGET
a) Inflation
10 Mr Speaker Sir, inflation remains our number one enemy, whose containment requires
total and unwavering commitment and collaboration of all stakeholders.
11 In order to arrest rising inflation and reduce it initially to double-digit levels and ultimately to single digit figures, Government will rigorously implement fiscal and monetary stabilisation measures. These will be complemented by structural measures to invoke an immediate positive supply response from the productive sectors of the economy.
12 Mr. Speaker Sir, central to achieving macroeconomic stabilisation will be fiscal discipline and increased focus on the efficient use of resources, aimed at attaining the desired target inflation levels for the economy. It will be necessary to implement complementary monetary policies.
13 Critical and consistent stabilisation policies to be implemented during 2004 will be as follows:-
Fiscal Policy
Recurrent Expenditure Management
14 Beginning with the 2004 Budget, Government will match recurrent expenditures to
current revenues. Budget borrowings will only be allowed for capital expenditures as
well as infrastructure development. Furthermore, unbudgeted expenditures will only be
restricted to national emergencies. Ministries will be expected to live within their budget provisions.
Public Enterprises
15 Public enterprises are being directed to charge economic and viable prices so as to ensure their financial independence from the national budget. Their borrowings from the market will be on the strength of their balance sheets with limited recourse to government guarantees.
Air Zimbabwe
16 The continued viability of Air Zimbabwe is critical for its operations, the promotion of tourism and national pride. It is therefore imperative that it charges economic prices on all its routes. Government also undertakes to facilitate the introduction of a strategic partner for our national airline. This should enable Air Zimbabwe to re-capitalise, and enhance service and market share in the region and beyond.
National Oil Company of Zimbabwe (NOCZIM)
17 In view of the deregulation of the fuel industry, NOCZIM will continue to supply fuel to the public sector as well as the agricultural sector and is expected to charge break-even prices for all its products.
Grain Marketing Board (GMB)
18 The adjustments to maize and wheat producer prices have not been consistently passed on and reflected in selling prices. This has led to very costly commercial borrowing for the GMB. To achieve break-even levels, the GMB is expected to diversify its operations.
In this regard, Government will provide resources to expand its milling operations.
National Railways of Zimbabwe (NRZ)
19 The performance of the National Railways of Zimbabwe has been severely undermined
by inadequate capitalisation and poor revenue recoveries. As a result, infrastructure
maintenance and the provision of basic passenger and freight services are severely
strained. In particular, the availability of passenger coaches, wagons and locomotives is no longer guaranteed.
20 Commercial rates, which are now applicable to inter-city rail passenger services and general freight, have improved revenue flows. Similarly, fares on urban commuter routes will be reviewed to levels, which allow recovery of operating costs.
21 Furthermore, NRZ is exempted from the fuel-based road levy, with effect from 1st
January 2004. This exemption will improve NRZ’s cash flow to the tune of $60 million.
Quasi-fiscal Operations
22 Large quasi-fiscal requirements, mostly financed from inflationary bank sources, have immensely contributed to the prevailing runaway inflation. The cumulative impact of these operations over the years has resulted in an unsustainable large borrowing requirement in excess of $150 billion. This was in respect of tobacco and gold support schemes, GMB and ZESA support, as well as NOCZIM advances arising from uneconomic pricing policies.
23 Beginning in the 2004 Budget, Government will narrow and ultimately avoid such
unbudgeted quasi-fiscal operations. The Reserve Bank is now authorised to dishonour all such payment requests and obligations outside the budget framework.
Use of Resources
24 To ensure efficient use of resources by the central government, local authorities and public enterprises, Government will engage both public and private auditors to
strengthen value for money audits and impose penalties on wasteful use of resources.
25 Further, quarterly disbursements will only be made upon satisfactory accountability of disbursed funds.
26 An Implementation and Control of Expenditure Unit (ICEU) is being set up to strengthen the capacity of line Ministries to implement and monitor development activities. I have allocated some resources for the Unit in the Budget.
Monetary Policy
27 Mr Speaker Sir, a significant reduction in the growth of money supply is critical for containing inflation. This will entail the following:
Inflation and Money Supply Targets
28 The Reserve Bank will target money supply growth to levels consistent with the desired inflation path. The Governor of the Reserve Bank will make the necessary
announcement in the Bank’s Monetary Policy Statement by mid-December 2003. In
addition, the Bank’s supervisory role will be strengthened.
Concessional Facilities
29 The utilisation of concessional facilities will be reviewed and monitoring will be
strengthened with a view to eradicating their abuse for speculative activities, which fuels inflation.
Interest Rates
30 Mr Speaker Sir, our economy continues to battle against inflation on the one hand andeconomic contraction on the other. In this regard, Government will pursue an interest rate policy, which will encourage growth on one hand, while fighting inflation on the other through discouraging speculative and consumptive borrowing. The details will be announced in the Monetary Policy Statement to be issued by the Governor of the Reserve Bank of Zimbabwe by mid- December 2003.
Other Measures
31 Mr Speaker Sir, the above measures, on their own, are inadequate to achieve economic recovery. Additional measures include support to generate a positive supply response. I will, therefore, be proposing expenditure and revenue measures in support of productive sectors and infrastructure development. Economic activity will also crucially depend on increased foreign exchange mobilisation and generation.
b) Exchange Control
32 Mr Speaker Sir, ensuring adequate availability of foreign exchange will require concerted efforts to account for and harness all the foreign currency that is due to Zimbabwe. The recommendations of the Cabinet Taskforce on Foreign Exchange Management will form an integral part of a strategy to achieve this.
33 Some foreign currency leakages have, evidently, been through locally registered
companies that have been granted Export Processing Zone status. These companies
borrow Zimbabwe dollars and also raise foreign exchange from the domestic market, but
retain 100% of their foreign exchange earnings, as they are not subject to Exchange
Control Regulations.
34 In order to stamp out foreign currency leakages in this sector, appropriate changes will be effected to make Exchange Control Regulations applicable to all locally registered companies operating in the Export Processing Zone area.
35 All other incentives relating to Export Processing Zone companies shall remain
unchanged.
Viability of Enterprises
36 The viability and competitiveness of all sectors of the economy especially earners of foreign exchange will receive renewed attention by Government to ensure growth in foreign exchange generation, increased domestic production and elimination of parallel market activities.
37 In this regard, the Government will mobilise resources through the Reserve Bank of
Zimbabwe, targeted at specific products and all sectors of the economy with a quick turn around in terms of export generation. The details are to be announced in the Governor’s Monetary Policy Statement.
Non-Resident Remittances
38 Government, through the Reserve Bank, has put in place institutional structures and implementation modalities to mobilise foreign currency from Non-resident Zimbabweans through the formal financial system. Plans for its implementation are at an advanced stage and will be disclosed in the Governor’s Statement.
c) Generating Supply Response
39 Mr Speaker Sir, I have already alluded to the need for measures to fight inflation through inducing production supply responses. These will include the following sector specific measures:
Agriculture
40 In Agriculture, Government is making budgetary allocations to support A1 farmers’
requirements in the form of inputs, tillage and equipment. Tax and non-tax incentives
are also being availed to private players supporting the Agrarian Reform.
41 In addition, Government has put in place a mechanism for private sector support to both A1 and A2 farmers. This incorporates features of the already signed Memoranda of Understanding between the Ministry of Lands, Agriculture and Rural Resettlement and the private sector. Government is also facilitating contract farming and providing extension services.
42 In the beef industry, Government will increase capacity utilisation of the Cold Storage Company (CSC) through private sector concessioning arrangements over unutilised abattoirs and partial debt take-over.
43 In order to empower rural communities, whose contribution to agricultural production is significant, Government is establishing a Rural Capital Development Fund to be operationalised through District and Provincial Development Committees structures, under the co-ordination of the Ministry of Rural Resources and Water Development.
44 Furthermore, recommendations of the Presidential Land Review Committee will be
implemented in order to speed up the land reform programme and improve productivity
in agriculture. Particular attention will also be paid to the protection of the environment in order to avoid deforestation.
Manufacturing
45 The manufacturing sector has been operating below capacity, in most instances below 50%. This has been largely due to shortage of foreign currency, transport bottlenecks, loss of skilled labour and unreliable supply of energy.
46 In order to reverse this trend and arrest de-industrialisation, the following interventions will be introduced:
• Launch an Industrialisation Development Strategy.
• Evaluate the Distressed Companies Fund with a view to strengthening it. Support
from this Fund will particularly target exporters while the qualifying criteria would be made stringent in order to avoid its abuse.
Introduce a graduated incentive structure to encourage increased value addition
through product beneficiation. This will promote manufactured exports and reduce
our over reliance on primary exports.
Encourage creation of strategic partnerships and alliances with key international
players in industry in order to enhance our capacities. This will improve our global
competitiveness and enhance technology transfer.
Mining
47 Mr Speaker Sir, given the heavy reliance of the mining sector on foreign markets, a fixed exchange rate under an environment of rising inflation has seriously undermined its viability and competitiveness. In addition to the exchange rate measures outlined above,
the following will be undertaken:
Recapitalise the Mining Industry Loan Fund in support of small miners;
Support the re-capitalisation of critical mines such Wankie Colliery;
Avail resources in support of capitalising Metallurgical Services for skills development and acquisition of the necessary equipment. This is intended to improve surveillance of exported minerals and metals.
48 Mr Speaker Sir, Government has noted with concern rampant deforestation and
environmental degradation owing to small mining activities such as gold panning. In
order to reverse this degradation and rehabilitate the environment, the Ministry of
Environment & Tourism will put in place a National Environmental Policy. Meanwhile,
Government and Local Authorities will enforce by-laws, and provide incentives to firms and communities, who participate in the protection of the environment.
Tourism
49 The sector continues to experience constraints associated with negative perceptions arising from adverse publicity and shortages of fuel. In order to realise full potential in this sector, Government will avail more resources for extensive promotional campaigns for Zimbabwe as a tourist destination. Further, the existing tourism infrastructure will be upgraded to international standards.
d) Infrastructure Development
50 Mr Speaker Sir, practically, all infrastructure in the country urgently requires
rehabilitation, upgrading or expansion. In particular, the capacity as well as the quality of services provided in sectors such as water, roads, railways, airports, electricity, education, health, post and telecommunications pose serious bottlenecks to the country's economic growth prospects.
51 At the same time, Government as the traditional financier and provider of the above infrastructure services is facing severe financial constraints. Therefore the Government will involve the private sector through concessioning and Build Operate and Transfer
(BOT) schemes in order meet the gap. Concessions will be explored with foreign
operators for the rehabilitation and upgrading of the railway track and signalling systems.
52 In addition, the road dualisation programme will continue to be financed through
budgetary allocations complemented by private sector participation on a BOT basis.
53 Further, Government will in particular institute measures to restore the vibrancy of the transport sector. In this regard, the re-capitalisation of the National Railways of Zimbabwe will be expedited, given its central role in the economy. This Budget will avail resources for the refurbishment of railway locomotives and wagons by local companies.
e) Social Services Delivery
54 The decline in the quality and quantum of social services delivery presents another challenge for this budget. In addition to budgetary allocations to resuscitate the sector, incentives for greater public-private partnership in the provision of social services will be
introduced.
iv) 2003 BUDGET OUT-TURN
55 Mr Speaker Sir, before I give you the economic outlook and estimates of expenditure for the 2004 Budget, allow me to present the anticipated budget outturn for 2003.
56 Total expenditure for the year is estimated at $1.442 trillion, against revenues of $1.141 trillion. This gives a deficit of $301 billion or 7.5% of GDP. Inclusion of quasi-fiscal expenditures, however, increases the estimated budget deficit out-turn to over 11%.
ECONOMIC OUTLOOK FOR 2004
57 Mr Speaker Sir, the 2004 economic outlook which forms the basis of my expenditure and revenue proposals is as follows:
• Real GDP decline will decelerate from 13.2% this year to 8.5% in 2004;
• Inflation will initially rise to above 700% during the first quarter of 2004 due to the momentum it has gathered this year. However, it is my projection that inflation will start to dissipate thereafter in response to both monetary and fiscal measures to be implemented in 2004.
58 I anticipate nominal GDP for 2004 to be $24.63 trillion. Given a revenue to GDP ratio of 28%, revenues will be about $6.9 trillion. Total expenditures will amount to $8.74 trillion giving a deficit of $1.85 trillion, which translates to 7.5% of GDP - a stand still position compared to 2003 in the absence of significant international flows.
v) ESTIMATES OF EXPENDITURE FOR 2004
59 Mr Speaker Sir, the above challenges and policy measures form the basis for allocating resources under the 2004 budget and guide our economic development path.
Recurrent Expenditure
60 Mr Speaker Sir, I have allowed recurrent expenditure of $7.75 trillion with Constitutional and Statutory Appropriations accounting for $1.33 trillion.
Social protection
61 The implementation of the measures contained in this Budget will entail transitional hardships especially for the vulnerable groups. I therefore propose to allocate $70.9 billion towards social protection programmes under the Ministry of Public Service, Labour and Social Welfare. This amount includes $48 billion for drought relief. Mr Speaker Sir, at this juncture allow me to acknowledge the support of our co-operating partners in drought alleviation, mitigating the HIV/AIDS pandemic and other humanitarian assistance.
62 In addition, I propose to allocate $3.5 billion in order to assist disadvantaged children under the Basic Education Assistance Module (BEAM) programme for assistance with school fees.
63 The global allocation for the Ministry of Public Service, Labour and Social Welfare amounts to $467.97 billion, which also includes grants to the Premier Medical Aid Society (PSMAS) and the National Social Security Authority (NSSA) of $105 billion and $9.5 billion, respectively, as employer contributions.
Health Services
64 Mr Speaker, Sir, in order to address the challenges in the health sector, I propose to allocate $701.2 billion to the Ministry of Health and Child Welfare, which will cater for field programmes and procurement of drugs.
65 Mr Speaker Sir, there is a significant number of our people with special health needs. In recognition of this, I propose to allocate $500 million for this purpose.
Education
66 Honourable Members may be aware that we have scored significant gains in the
education sector. However, of late the quality of education has been compromised
owing to resource constraints. I, therefore, propose to allocate a total of $2.08 trillion for the two Ministries of Education. Of this amount, $1.52 trillion will be for the Ministry of Education, Sport and Culture and $557.7 billion for Higher and Tertiary Education.
67 The proposed allocations are motivated by the need to provide adequate infrastructure,
basic teaching materials, adequate per capita and equalisation grants.
68 Under Education, Sport and Culture, an amount of $7.7 billion covers tuition and learning materials. I also propose to allocate $11.1 billion as a grant to the Zimbabwe Schools Examination Council, in order to enhance the administration of our examinations.
Science and Technology
69 In view of role that science and technology plays in providing a basis for innovation, value addition and enhancing competitiveness of industry and commerce. I propose to
allocate $20.1 billion for both recurrent and capital budget requirements for SIRDC and the Department of Science and Technology in the Office of the President and Cabinet.
70 Mr Speaker Sir, our success in Tunisia depends on thorough preparation by the national team. In this regard, I propose to allocate $1.4 billion for the Warriors’ Tunisia campaign. This allocation falls under the grant to the Sport and Recreation Commission.
Maintenance of Infrastructure
71 The quality and development of infrastructure in any economy is one of the major
determinants of economic growth. Its maintenance and rehabilitation is critical. I have,therefore, made a total provision of $157.6 billion for infrastructure maintenance in the Budget. Of this amount, $96 billion has been set aside for road maintenance and $25 billion for Government buildings.
Agriculture
72 Mr Speaker Sir, the call for increased funding for agriculture remains imperative. This, however, should be purposefully programmed and targeted to incorporate incentives for private sector involvement.
73 I propose to allocate a sum of $439.8 billion to the Ministry of Lands, Agriculture and Rural Resettlement. This allocation includes a provision of $25 billion for agricultural inputs for communal farmers. Other farmers will benefit from resources under the Agricultural Development Bank. The allocation also includes $15.4 billion for suppression of animal diseases. Allocations to Veterinary Services and Agricultural Research and Extension Services (AREX) have been increased to facilitate vehicle hire, field trials,training and other operational activities.
Mines
74 Honourable Members will be aware that Government is in the process of building
capacity of the Ministry of Mines and Mining Development in response to the challenges we face in the mining sector. This explains my proposed allocation of $22.1 billion to the Ministry. The allocation includes an amount of $5 billion as support to small-scale miners through the Mining Industry Loan Fund.
Local Authority Debt
75 Mr Speaker Sir, Government remains committed to reducing its indebtedness to local
authorities. I propose to allocate $17 billion for this commitment under the Ministry of Local Government, Public Works and National Housing. It is expected that the local authorities concerned will put these resources to critical social and economic programmes.
Defence and Security
76 Mr Speaker Sir, for defence and security, I propose a total allocation of $1.27 trillion for the operations of our forces, with salaries, wages and allowances accounting for $854 billion. Of the total allocation, $661.1 billion is for the Zimbabwe National Army, $128.7 billion for the Air Force, $339.8 billion for Zimbabwe Republic Police and $142.7 billion for
Zimbabwe Prisons Service.
Resource Use
77 Mr Speaker Sir, appreciating the significance of value for money in public spending is
important in reducing wasteful expenditures. It is imperative that we enhance
expenditure tracking, which entails monitoring and evaluation of projects and
programmes from both a physical and financial perspective. I am therefore, proposing
an allocation of $5 billion under my Ministry with a specific subhead which, I have
designated - ‘Implementation and Control of Expenditure Unit (ICEU)’.
78 The monitoring will be undertaken in conjunction with key stakeholders such as the
Portfolio Committees, the Public Service Commission, Comptroller and Auditor General’s Office
Wage Bill
79 Mr Speaker Sir, the brain drain has become an important policy challenge both in
Government and the private sector. It is also pertinent to note that the country is not reaping the dividends from the massive investment in human capital, which the
Government made since independence, as professionals and skilled workers emigrate to
other countries in search of greener pastures. In addition, the high levels of inflation have seriously eroded civil service wages and frequent strikes, particularly in the health sector have dislocated service delivery.
80 In cognisance of the need to address this problem, I have allocated $3.18 trillion for wages and salaries in the civil service. It is my hope that this will, to some extent, go a long way in alleviating the plight of the civil servants.
Capital Expenditure
81 Mr Speaker Sir, as I mentioned above, it is critical that we begin to re-orient our budget towards development projects and programmes. In line with this policy thrust, I intend to increase total capital expenditure from 10% in 2003 to 11.3% in 2004. I propose to allocate $991,3 billion for capital development.
82 Let me now turn to specific proposals for 2004 under the Public Sector Investment
Programme (PSIP).
Rural Capital Development Fund
83 Mr Speaker Sir, currently there are many community based initiatives such as Rural
Development Fund, Community Action Programme, the Integrated Rural Water and
Sanitation Programme and the Dry Areas Development Programme. These have resulted
in the duplication of effort and wastage of resources. I therefore, propose to rationalise these initiatives into a single Rural Capital Development Fund under the co-ordination of the Ministry of Rural Resources and Water Development. I have proposed an allocation of $16 billion to be distributed equally among respective provinces.
Agriculture
84 In order to improve productivity, mitigate the effects of drought and restore the viability of the agricultural sector, I have allocated $587.6 billion to be channelled towards irrigation rehabilitation and development, mechanisation, capitalisation of the Agricultural
Development Bank, livestock production and enhanced extension services.
Transport and Communication
85 In order to strengthen this sector, l propose to allocate $148.5 billion towards
rehabilitation and construction of roads and bridges, procurement of vehicles for CMEDas well as refurbishment of the NRZ’s infrastructure and provision of postal services. The above allocation will also provide for the dualisation of the Harare-Masvingo and Harare- Gweru roads.
Social Sector
86 I propose to allocate $115,2 billion towards construction of facilities at institutions of higher learning, hospitals and secondary schools. Included in this provision is $17,1 billion for the refurbishment and rehabilitation of infrastructure at institutions of higher learning, especially at the University of Zimbabwe where infrastructure has reached an advanced stage of deterioration.
Tourism
87 The tourism sector has quick turn-around potential for generating foreign currency. In recognition of this, I propose to allocate $21 billion towards the refurbishment and upgrading of major airports and tourism facilities. Included in this amount, is a sum of $17.9 billion for upgrading the Harare, Joshua Nkomo and Buffalo Range Airports. A further $2.2 billion has been set aside for the upgrading of tourism facilities in the Gonarezhou Transfrontier Park.
Support to Local Authorities
88 The delivery of critical services such as housing, water, sewer reticulation and health, by local authorities has been constrained by the difficult macroeconomic environment over the years. To address this challenge, I have allocated $40.8 billion in this budget.
Economic Empowerment and Employment Creation
89 In an endeavour to promote and encourage participation of indigenous persons in the development of our economy, I propose to allocate $8.5 billion for the recapitalisation of the Small Enterprise Development Corporation (SEDCO). This institution plays a critical role in the development of Small and Medium Scale Enterprises (SMEs). I also propose to make provision, within this budget, of a further $5 billion as capital injection into the Zimbabwe Development Bank (ZDB). I further propose to allocate $1.5 billion to the
Venture Capital Company of Zimbabwe (VCCZ).
Civil Service Housing Programme
90 Mr Speaker Sir, most civil servants are facing accommodation problems. Honourable
Members will recall that I allocated $1 billion in the 2003 Budget for this programme. I propose to set aside $10 billion for this purpose in the next fiscal year.
Budget Support
91 Honourable Members will appreciate that the cost of service delivery has been escalating on account of inflation. I have therefore had to set aside some resources to take account of this, representing 15% of the overall budget, for contingency budgetary support under my Ministry.
vi) REVENUE PROPOSALS
92 Mr Speaker Sir, in response to consultations held with various stakeholders, the 2004 revenue measures seek to address the following issues:
Enhancement of disposable income in the hands of tax payers thereby stimulating
aggregate demand;
Intensification of revenue collection from the informal sector thereby widening the tax
base; and
Stimulation of economic activity through provision of incentives.
INCOME TAX
Individual
Pay As You Earn (PAYE)
93 Mr Speaker Sir, high levels of inflation have eroded the purchasing power of workers. I therefore, propose to take measures that will give relief to individual taxpayers from the effects of these developments.
94 With effect from 1st January 2004, I propose to increase the individual income tax
threshold from $180 000 to $2 400 000 per annum and also widen the income tax bands
to end at $4,5 million above which income will be taxed at 45%. This measure will
release $1,2 trillion to taxpayers.
Bonus
95 Bonus represents additional income to taxpayers, which they use to purchase durable consumer goods. In view of the surge in inflation I also propose to increase the tax-free portion of the bonus or performance related award from $20 000 to $100 000 with effect from 1st November 2003, thereby releasing $14.4 billion to the taxpayers.
Credits
96 Income tax credits are used to alleviate the tax burden on the elderly, blind and disabled.I propose to increase the income tax for the elderly, blind and disabled from $20 000 to $120000 with effect from 1st of January 2004.
Tax Free Pension Contribution
97 Pension contributions are an important part of savings mobilisation in any economy. The value of these pension contributions have however, been adversely affected by the current high rate of inflation. I propose to increase the allowable tax free pension contribution from $90 000 to $720 000 per annum with effect from 1st January 2004.
Commutation from Pension and Provident Fund
98 The tax-free portion on a commutation of a pension is currently pegged at $250 000 or one third of a lump sum whichever is greater. I propose to increase the tax-free portion to one million or one third of the lump sum whichever is greater with effect from 1st January 2004.
Contribution to Pension/ Retirement Annuity Funds
99 Mr Speaker Sir, the Pension and Provident Funds regulations provide that the aggregate maximum yearly contributions that a member can make to a Pension/Retirement Annuity
Fund should be limited to 25% of the member’s gross salary as declared for tax purposes in the previous year. In order to enhance savings, I propose to remove the restriction with effect from 1st January 2004.
Severance Package
100 Severance packages are a source of income that can be used to start up small to medium scale enterprises. It is therefore important that taxpayers remain with a large portion of
disposable income after tax. The tax-free severance package is currently pegged at $300000 or 1/3 of $1, 5 million whichever is greater. I propose to increase the tax-free
portion of the severance package to $1,5 million or one third of the severance package.
DEEMED BENEFITS
Motor Vehicles
101 The current threshold of motor vehicle deemed benefits range from $240 000 to $900000 depending on the engine capacity. I take full cognisance of the fact that the motor vehicle benefit is important to retain skills. However the cost of maintenance of thesevehicles has escalated due to the currently obtaining high inflation. I therefore propose
to increase the benefits as follows:
Engine Capacity Proposed Deemed Benefit
Up to 1500 cc $600 000
1501 to 2000.cc $1 260 000
2001 to 3000 cc $2 480 000
Over 3000 cc $3 312 000.
Carbon Tax
102 Mr Speaker Sir, I propose to review the rates of carbon tax with effect from 1st January 2004, as follows:
Engine Capacity Tax Level
Up to 1500 cc $20 000
1501 to 2000 cc $35 000
2001 to 3000 cc $50 000
Over 3000 cc $100 000
COMPANIES AND TRUSTS
Corporate Tax
103 Mr Speaker Sir, corporate tax is currently pegged at a rate of 30%. I propose to
maintain the corporate tax rate at the current level.
Capital Allowances
104 Capital allowances are one of the incentives that enhance productivity of companies. The value of these incentives has however been eroded by inflation. I propose the following adjustments with effect from 1st January 2004
Passenger motor vehicles: - from $1 million to $10 million
Staff housing: - from one million with upper of limit of $3 million to $15 million with an upper limit of $50 million
Schools hospitals and clinics: - from $10 million to $50 million
Deposit Protection Scheme
105 One of the objectives of the Deposit Protection Scheme is to build a sustainable fund, from which depositors will be paid should a financial institution fail. In the absence of such a fund, the fiscus may be called upon to bear the responsibility for reimbursing depositors or bailing out failing banks. The introduction of the Scheme will contribute towards the stability of Zimbabwe’s financial system. I therefore propose to exempt the Scheme from income tax and withholding tax on interest with effect from 1st January
2004.
Allowable Deductions in Respect of Donations
106 Maximum allowable deductions in respect of donations to schools, hospitals and clinics, research and development were fixed during the last fiscal year. In order to encourage private sector participation, I propose to increase the allowable deductions, with effect from 1st January 2004, as follows:
Schools: from $10 million to $100 million;
Hospitals and Clinics: from $10 million to $100 million;
Research and Development: from $20 million to $100
million.
107 I further propose to introduce a section, which allows for the deduction of amounts donated to the Public - Private Partnership Fund to a maximum of $100 million.
Convention Attendance
108 The maximum allowable expenditure for attendance of a convention or trade mission is currently pegged at $100 000 incurred during the year of assessment. In view of the importance of trade missions in promoting exports, I propose to increase the maximum allowable expenditure to $5 million with effect from 1st January 2004.
Royalties
109 Mr Speaker Sir, the Mining Tax Regime, which was introduced in 2001, included royalties among other measures. Collection of royalties will commence on the 1st of January 2004.
In line with regional and international practice, I propose that the Income Tax Act be amended to allow for deduction of expenditure on royalties with effect from 1st January 2004.
Thin Capitalisation
110 Mr Speaker Sir, to close loopholes under which companies in the same group claim tax deductions on interest charges arising from intra-company lending, I propose to extend the thin capitalisation provisions that are currently applied on the mining sector to other sectors with effect from 1st January 2004.
Automated Financial Transactions Tax
111 The automated financial transaction tax is currently charged at the rate of $5 for each transaction. Due to the higher inflation, I propose to increase the rate to $50 for each transaction with effect from 1st January 2004.
Revenue Protection Measures
112 Mr Speaker Sir, due to rampant tax evasion, it has become necessary to empower the Commissioner General to estimate PAYE not remitted within the required period.
113 I further propose to realign the Statutory Rate of Interest to the prevailing Treasury Bills rate. ZIMRA will also be required to pay interest at the same rate on delayed payment of refunds due to taxpayers.
114 In addition, the Income Tax Act will be amended to enable interest on withholding tax to become payable after due date. The Customs & Excise Act will also be amended to provide for the charging of interest on duty paid after the time of importation and the penalty rate will be increased for repeating offenders from 100% to 300%.
STAMP DUTY
Marketable Securities
115 Stamp duty is chargeable on marketable securities at a rate of $1 for every $100 or part thereof. The rate was last reviewed in 2001. I propose to increase the rate to $5 for every $100.
Cheques
116 Currently the stamp duty payable on any cheque is $5. I propose to increase the amount to $50.
CAPITAL GAINS
Inflation Allowance
117 The inflation allowance used in the calculation of capital gains tax is currently pegged at 50%. In view of the hyperinflationary environment, I propose to increase the inflation allowance to 100% of original cost with effect from 1st January 2004.
Withholding Capital Gains Tax
118 Under the withholding tax on capital gains, a tax clearance certificate is required before property transfer. With effect from 1st January 2004, I propose to waive this requirement in the following circumstances:
• Transfers ordered by the Court ,
• Sale in execution of immovable property by the Sheriff of the High Court, and
• Where the transaction is wholly financed by a Building Society.
ESTATE DUTY
119 Mr Speaker Sir, estate duty rebates are currently pegged at $5 million and $10 million in
respect of a surviving spouse or surviving minor children, respectively. I propose to
increase the rebates to $20 million and $40 million where there is a surviving spouse or surviving minor children, respectively.
Value Added Tax (VAT)
Rate
120 Mr Speaker Sir, VAT will replace Sales Tax with effect from 1st January 2004. I propose to introduce VAT at a standard rate of 15%.
Registration/Refunds Thresholds, Zero Rating & Exemptions
121 I propose that registration/refunds thresholds, zero rating and exemptions be moved from the Principal Act to subsidiary legislation.
VAT EXEMPTIONS
Agricultural Machinery
122 In order to support agricultural activities and boost productivity in this sector, I propose to expand the exemption schedule to include agricultural machinery.
TOURISM
Accommodation & Other Services Paid For In Foreign Currency
123 Under the current Sales Tax legislation, sales tax is not payable on accommodation and other tourism related services provided non-residents pay for them in foreign currency. I propose to extend this provision under the Value Added Tax.
124 Mr Speaker Sir, I further propose to expand the exemption list to include the following:
• Hospitals and Nursing homes
• Educational services
• Financial services and
• Fuel.
NOCZIM Debt Redemption Levy
125 Before the liberalisation of fuel procurement, amortisation of the Noczim debt was part of the pump price build up. In view of the many Direct Fuel Importers now involved, I propose a levy of $110 per litre of diesel and petrol, both leaded and unleaded, to be collected at the point of entry by ZIMRA. This measure is effective from 1st December 2003 and does not include illuminating paraffin and aviation fuel.
CUSTOMS DUTY
Selected Goods Imported by Local Authorities
126 In support of improving provision of such Local Authority amenities as refuse collection, road maintenance etc, I propose to remove duty on refuse collection and road maintenance trucks with effect from 1st December 2003.
Commuter Omnibus Transport
127 In order to ease commuter omnibus transport problems, I propose suspension of
customs duty on commuter omnibus with a carrying capacity of 26 passengers and
above. This is with effect from 1st December 2003.
EXCISE DUTY
128 Mr Speaker Sir, specific rates of duty on spirits have not been adjusted for a long time. I ropose to convert the specific rate on spirits to 10% per litre with effect from 1st December 2003.
129 I further propose to reduce excise duty on the following products with effect from January 1, 2004 as follows:
• Aerated waters from 15% to 5%
• Cigarettes and tobacco from 85% to 60%
• Opaque Beer from 10 to 0%
• Clear beer from 60% to 40%.
130 Value added tax at a standard rate of 15% will be levied on the above products with effect from January 1, 2004.
Building Societies Paid Up Permanent Shares (PUPS)
131 Last year, I reviewed limits on individual and corporate deposits in tax-free Class C Paid Up Permanent Shares with Building Societies to $5 million and $3.5 million respectively.
In light of the inflationary developments, I propose to increase the limits to $20 million for individuals and $14 million for corporations.
Peoples Own Savings Bank (POSB) Fixed Deposits
132 In the same vein, I propose to raise the limit on POSB fixed deposits from $5 million for
individuals and $3.5 million for corporates to $20 million and $14 million respectively.
This will assist in increasing the flow of deposits into the bank.
vii) FINANCING
133 Mr Speaker Sir, the projected low levels of external inflows, means that the bulk of the deficit of $1.85 trillion will have to be financed domestically. This underlines the importance of improving revenue performance, avoiding expenditure over runs and speeding up the pace of privatisation.
134 In order to avoid bunching up of public debt service, I will during 2004 institute measures to further restructure domestic debt in consultation with financial community. I am pleased to note commitments to support this exercise as contribution to bring down inflation and foster sustained growth and development.
viii) CONCLUSION
135 In this environment, Mr Speaker Sir, we cannot afford to do business as usual. We need to adequately appreciate the magnitude of the macroeconomic challenges facing us.
This is critical for the introduction and implementation of fully informed policy responses.
It is also imperative that we avoid reversals on agreed policy positions and aborting
painful measures mid way through implementation.
136 It is vital that measures to revive domestic production and exporting are expeditiously implemented. Confidence building, policy consistency and political commitment in policy implementation, re-engagement of partners within the TNF are also critical in fighting inflation and stabilising the economy.
137 It is also vital that we protect the integrity and credibility of the budget as an instrument of economic management. This will require that all Ministries and Departments demonstrate their commitment by living within their allocations and the agreed budget framework. Mr Speaker Sir, the role of the Parliamentary Portfolio Committees will be critical in ensuring that this happens.
138 Failure to implement agreed measures can only send wrong signals, fuelling self-fulfilling inflationary expectations. We should now address these challenges in earnest, if the economy is to be turned around.
139 Mr Speaker Sir, our future lies in our own hands. The challenges that confront us are surmountable provided we show unity of purpose. As one Nina O’nill once said, ‘‘Out of every crisis comes the chance to be reborn’’.
I THANK YOU
HARARE
November 20, 2003.
i) MOTION
Mr. Speaker Sir,
1 I move that leave be granted to bring in a Bill to make provisions in connection with revenues and expenditures of the Republic of Zimbabwe and to make provision for
matters ancillary and incidental to this purpose.
ii) INTRODUCTION
2 Mr Speaker Sir, the country has once more experienced another year of severe socioeconomic hardships. The sanctions imposed on the country have worsened the
economic environment. These hardships have manifested themselves in rising inflation,
erosion of real incomes, critical foreign exchange shortages, decline in savings and
investment, capacity under-utilisation, company closures and high unemployment. The
HIV/AIDS pandemic has compounded the situation. As a result, the economy is
estimated to contract by 13.2% this year and inflation to peak at about 600% by
December 2003.
3 Our economy’s performance vis-à-vis that of the region as well as the rest of the world, limits Zimbabwe’s capacity to play its role in the global economy and effectively participate in international relations.
4 World economic output has been on an upward trend and is estimated to grow by 3.2%
in 2003. Higher growth of 4.1% is projected for 2004. Consistent with these positive
growth rates, inflation remained very low, at about 1.6% in 2003 and is projected at
1.8% in 2004.
5 In the rest of the SADC countries, positive performances are also being experienced, with average growth rates of 2.6% and inflation of 15.3% in 2003, with a further decline to 8.1% in 2004.
6 Rapid development of informal and parallel markets for both goods and foreign exchange are entrenching a growing shadow economy, with rising incidences of rampant
corruption in both the private and public sectors. Work and business ethics are fast
disappearing as people aspire and search for overnight wealth.
7 Uneconomic pricing, management deficiencies and operational inefficiencies of some of our public enterprises have also negatively impacted on the budget and hampered their contribution to economic recovery.
8 Mr Speaker Sir, inspite of all the difficulties I have alluded to, the economy remains resilient. Our nation possesses all the ingredients to tackle our challenges head-on, for a successful economic turn-around. These ingredients include, among others, skilled human resources, developed infrastructure, and abundant wildlife and mineral resources.
The ushering in of an agrarian culture in our country, which has given our people a new sense of empowerment, will provide an anchor for a broad-based economic revival.
9 It is, therefore, critical that the 2004 Budget addresses the challenges I have just highlighted. Specifically, focus should be on containing inflation, increasing the capacity to generate more foreign currency, supporting the productive and export sectors, enhancing conditions for increased private sector involvement, improving infrastructure,job creation, economic empowerment and the delivery of social services. Measures will also be undertaken to enhance the efficient use of public resources and the elimination of corruption in both the public and private sectors.
iii) THE PRIORITIES AND POLICY THRUST OF THE 2004 BUDGET
a) Inflation
10 Mr Speaker Sir, inflation remains our number one enemy, whose containment requires
total and unwavering commitment and collaboration of all stakeholders.
11 In order to arrest rising inflation and reduce it initially to double-digit levels and ultimately to single digit figures, Government will rigorously implement fiscal and monetary stabilisation measures. These will be complemented by structural measures to invoke an immediate positive supply response from the productive sectors of the economy.
12 Mr. Speaker Sir, central to achieving macroeconomic stabilisation will be fiscal discipline and increased focus on the efficient use of resources, aimed at attaining the desired target inflation levels for the economy. It will be necessary to implement complementary monetary policies.
13 Critical and consistent stabilisation policies to be implemented during 2004 will be as follows:-
Fiscal Policy
Recurrent Expenditure Management
14 Beginning with the 2004 Budget, Government will match recurrent expenditures to
current revenues. Budget borrowings will only be allowed for capital expenditures as
well as infrastructure development. Furthermore, unbudgeted expenditures will only be
restricted to national emergencies. Ministries will be expected to live within their budget provisions.
Public Enterprises
15 Public enterprises are being directed to charge economic and viable prices so as to ensure their financial independence from the national budget. Their borrowings from the market will be on the strength of their balance sheets with limited recourse to government guarantees.
Air Zimbabwe
16 The continued viability of Air Zimbabwe is critical for its operations, the promotion of tourism and national pride. It is therefore imperative that it charges economic prices on all its routes. Government also undertakes to facilitate the introduction of a strategic partner for our national airline. This should enable Air Zimbabwe to re-capitalise, and enhance service and market share in the region and beyond.
National Oil Company of Zimbabwe (NOCZIM)
17 In view of the deregulation of the fuel industry, NOCZIM will continue to supply fuel to the public sector as well as the agricultural sector and is expected to charge break-even prices for all its products.
Grain Marketing Board (GMB)
18 The adjustments to maize and wheat producer prices have not been consistently passed on and reflected in selling prices. This has led to very costly commercial borrowing for the GMB. To achieve break-even levels, the GMB is expected to diversify its operations.
In this regard, Government will provide resources to expand its milling operations.
National Railways of Zimbabwe (NRZ)
19 The performance of the National Railways of Zimbabwe has been severely undermined
by inadequate capitalisation and poor revenue recoveries. As a result, infrastructure
maintenance and the provision of basic passenger and freight services are severely
strained. In particular, the availability of passenger coaches, wagons and locomotives is no longer guaranteed.
20 Commercial rates, which are now applicable to inter-city rail passenger services and general freight, have improved revenue flows. Similarly, fares on urban commuter routes will be reviewed to levels, which allow recovery of operating costs.
21 Furthermore, NRZ is exempted from the fuel-based road levy, with effect from 1st
January 2004. This exemption will improve NRZ’s cash flow to the tune of $60 million.
Quasi-fiscal Operations
22 Large quasi-fiscal requirements, mostly financed from inflationary bank sources, have immensely contributed to the prevailing runaway inflation. The cumulative impact of these operations over the years has resulted in an unsustainable large borrowing requirement in excess of $150 billion. This was in respect of tobacco and gold support schemes, GMB and ZESA support, as well as NOCZIM advances arising from uneconomic pricing policies.
23 Beginning in the 2004 Budget, Government will narrow and ultimately avoid such
unbudgeted quasi-fiscal operations. The Reserve Bank is now authorised to dishonour all such payment requests and obligations outside the budget framework.
Use of Resources
24 To ensure efficient use of resources by the central government, local authorities and public enterprises, Government will engage both public and private auditors to
strengthen value for money audits and impose penalties on wasteful use of resources.
25 Further, quarterly disbursements will only be made upon satisfactory accountability of disbursed funds.
26 An Implementation and Control of Expenditure Unit (ICEU) is being set up to strengthen the capacity of line Ministries to implement and monitor development activities. I have allocated some resources for the Unit in the Budget.
Monetary Policy
27 Mr Speaker Sir, a significant reduction in the growth of money supply is critical for containing inflation. This will entail the following:
Inflation and Money Supply Targets
28 The Reserve Bank will target money supply growth to levels consistent with the desired inflation path. The Governor of the Reserve Bank will make the necessary
announcement in the Bank’s Monetary Policy Statement by mid-December 2003. In
addition, the Bank’s supervisory role will be strengthened.
Concessional Facilities
29 The utilisation of concessional facilities will be reviewed and monitoring will be
strengthened with a view to eradicating their abuse for speculative activities, which fuels inflation.
Interest Rates
30 Mr Speaker Sir, our economy continues to battle against inflation on the one hand andeconomic contraction on the other. In this regard, Government will pursue an interest rate policy, which will encourage growth on one hand, while fighting inflation on the other through discouraging speculative and consumptive borrowing. The details will be announced in the Monetary Policy Statement to be issued by the Governor of the Reserve Bank of Zimbabwe by mid- December 2003.
Other Measures
31 Mr Speaker Sir, the above measures, on their own, are inadequate to achieve economic recovery. Additional measures include support to generate a positive supply response. I will, therefore, be proposing expenditure and revenue measures in support of productive sectors and infrastructure development. Economic activity will also crucially depend on increased foreign exchange mobilisation and generation.
b) Exchange Control
32 Mr Speaker Sir, ensuring adequate availability of foreign exchange will require concerted efforts to account for and harness all the foreign currency that is due to Zimbabwe. The recommendations of the Cabinet Taskforce on Foreign Exchange Management will form an integral part of a strategy to achieve this.
33 Some foreign currency leakages have, evidently, been through locally registered
companies that have been granted Export Processing Zone status. These companies
borrow Zimbabwe dollars and also raise foreign exchange from the domestic market, but
retain 100% of their foreign exchange earnings, as they are not subject to Exchange
Control Regulations.
34 In order to stamp out foreign currency leakages in this sector, appropriate changes will be effected to make Exchange Control Regulations applicable to all locally registered companies operating in the Export Processing Zone area.
35 All other incentives relating to Export Processing Zone companies shall remain
unchanged.
Viability of Enterprises
36 The viability and competitiveness of all sectors of the economy especially earners of foreign exchange will receive renewed attention by Government to ensure growth in foreign exchange generation, increased domestic production and elimination of parallel market activities.
37 In this regard, the Government will mobilise resources through the Reserve Bank of
Zimbabwe, targeted at specific products and all sectors of the economy with a quick turn around in terms of export generation. The details are to be announced in the Governor’s Monetary Policy Statement.
Non-Resident Remittances
38 Government, through the Reserve Bank, has put in place institutional structures and implementation modalities to mobilise foreign currency from Non-resident Zimbabweans through the formal financial system. Plans for its implementation are at an advanced stage and will be disclosed in the Governor’s Statement.
c) Generating Supply Response
39 Mr Speaker Sir, I have already alluded to the need for measures to fight inflation through inducing production supply responses. These will include the following sector specific measures:
Agriculture
40 In Agriculture, Government is making budgetary allocations to support A1 farmers’
requirements in the form of inputs, tillage and equipment. Tax and non-tax incentives
are also being availed to private players supporting the Agrarian Reform.
41 In addition, Government has put in place a mechanism for private sector support to both A1 and A2 farmers. This incorporates features of the already signed Memoranda of Understanding between the Ministry of Lands, Agriculture and Rural Resettlement and the private sector. Government is also facilitating contract farming and providing extension services.
42 In the beef industry, Government will increase capacity utilisation of the Cold Storage Company (CSC) through private sector concessioning arrangements over unutilised abattoirs and partial debt take-over.
43 In order to empower rural communities, whose contribution to agricultural production is significant, Government is establishing a Rural Capital Development Fund to be operationalised through District and Provincial Development Committees structures, under the co-ordination of the Ministry of Rural Resources and Water Development.
44 Furthermore, recommendations of the Presidential Land Review Committee will be
implemented in order to speed up the land reform programme and improve productivity
in agriculture. Particular attention will also be paid to the protection of the environment in order to avoid deforestation.
Manufacturing
45 The manufacturing sector has been operating below capacity, in most instances below 50%. This has been largely due to shortage of foreign currency, transport bottlenecks, loss of skilled labour and unreliable supply of energy.
46 In order to reverse this trend and arrest de-industrialisation, the following interventions will be introduced:
• Launch an Industrialisation Development Strategy.
• Evaluate the Distressed Companies Fund with a view to strengthening it. Support
from this Fund will particularly target exporters while the qualifying criteria would be made stringent in order to avoid its abuse.
Introduce a graduated incentive structure to encourage increased value addition
through product beneficiation. This will promote manufactured exports and reduce
our over reliance on primary exports.
Encourage creation of strategic partnerships and alliances with key international
players in industry in order to enhance our capacities. This will improve our global
competitiveness and enhance technology transfer.
Mining
47 Mr Speaker Sir, given the heavy reliance of the mining sector on foreign markets, a fixed exchange rate under an environment of rising inflation has seriously undermined its viability and competitiveness. In addition to the exchange rate measures outlined above,
the following will be undertaken:
Recapitalise the Mining Industry Loan Fund in support of small miners;
Support the re-capitalisation of critical mines such Wankie Colliery;
Avail resources in support of capitalising Metallurgical Services for skills development and acquisition of the necessary equipment. This is intended to improve surveillance of exported minerals and metals.
48 Mr Speaker Sir, Government has noted with concern rampant deforestation and
environmental degradation owing to small mining activities such as gold panning. In
order to reverse this degradation and rehabilitate the environment, the Ministry of
Environment & Tourism will put in place a National Environmental Policy. Meanwhile,
Government and Local Authorities will enforce by-laws, and provide incentives to firms and communities, who participate in the protection of the environment.
Tourism
49 The sector continues to experience constraints associated with negative perceptions arising from adverse publicity and shortages of fuel. In order to realise full potential in this sector, Government will avail more resources for extensive promotional campaigns for Zimbabwe as a tourist destination. Further, the existing tourism infrastructure will be upgraded to international standards.
d) Infrastructure Development
50 Mr Speaker Sir, practically, all infrastructure in the country urgently requires
rehabilitation, upgrading or expansion. In particular, the capacity as well as the quality of services provided in sectors such as water, roads, railways, airports, electricity, education, health, post and telecommunications pose serious bottlenecks to the country's economic growth prospects.
51 At the same time, Government as the traditional financier and provider of the above infrastructure services is facing severe financial constraints. Therefore the Government will involve the private sector through concessioning and Build Operate and Transfer
(BOT) schemes in order meet the gap. Concessions will be explored with foreign
operators for the rehabilitation and upgrading of the railway track and signalling systems.
52 In addition, the road dualisation programme will continue to be financed through
budgetary allocations complemented by private sector participation on a BOT basis.
53 Further, Government will in particular institute measures to restore the vibrancy of the transport sector. In this regard, the re-capitalisation of the National Railways of Zimbabwe will be expedited, given its central role in the economy. This Budget will avail resources for the refurbishment of railway locomotives and wagons by local companies.
e) Social Services Delivery
54 The decline in the quality and quantum of social services delivery presents another challenge for this budget. In addition to budgetary allocations to resuscitate the sector, incentives for greater public-private partnership in the provision of social services will be
introduced.
iv) 2003 BUDGET OUT-TURN
55 Mr Speaker Sir, before I give you the economic outlook and estimates of expenditure for the 2004 Budget, allow me to present the anticipated budget outturn for 2003.
56 Total expenditure for the year is estimated at $1.442 trillion, against revenues of $1.141 trillion. This gives a deficit of $301 billion or 7.5% of GDP. Inclusion of quasi-fiscal expenditures, however, increases the estimated budget deficit out-turn to over 11%.
ECONOMIC OUTLOOK FOR 2004
57 Mr Speaker Sir, the 2004 economic outlook which forms the basis of my expenditure and revenue proposals is as follows:
• Real GDP decline will decelerate from 13.2% this year to 8.5% in 2004;
• Inflation will initially rise to above 700% during the first quarter of 2004 due to the momentum it has gathered this year. However, it is my projection that inflation will start to dissipate thereafter in response to both monetary and fiscal measures to be implemented in 2004.
58 I anticipate nominal GDP for 2004 to be $24.63 trillion. Given a revenue to GDP ratio of 28%, revenues will be about $6.9 trillion. Total expenditures will amount to $8.74 trillion giving a deficit of $1.85 trillion, which translates to 7.5% of GDP - a stand still position compared to 2003 in the absence of significant international flows.
v) ESTIMATES OF EXPENDITURE FOR 2004
59 Mr Speaker Sir, the above challenges and policy measures form the basis for allocating resources under the 2004 budget and guide our economic development path.
Recurrent Expenditure
60 Mr Speaker Sir, I have allowed recurrent expenditure of $7.75 trillion with Constitutional and Statutory Appropriations accounting for $1.33 trillion.
Social protection
61 The implementation of the measures contained in this Budget will entail transitional hardships especially for the vulnerable groups. I therefore propose to allocate $70.9 billion towards social protection programmes under the Ministry of Public Service, Labour and Social Welfare. This amount includes $48 billion for drought relief. Mr Speaker Sir, at this juncture allow me to acknowledge the support of our co-operating partners in drought alleviation, mitigating the HIV/AIDS pandemic and other humanitarian assistance.
62 In addition, I propose to allocate $3.5 billion in order to assist disadvantaged children under the Basic Education Assistance Module (BEAM) programme for assistance with school fees.
63 The global allocation for the Ministry of Public Service, Labour and Social Welfare amounts to $467.97 billion, which also includes grants to the Premier Medical Aid Society (PSMAS) and the National Social Security Authority (NSSA) of $105 billion and $9.5 billion, respectively, as employer contributions.
Health Services
64 Mr Speaker, Sir, in order to address the challenges in the health sector, I propose to allocate $701.2 billion to the Ministry of Health and Child Welfare, which will cater for field programmes and procurement of drugs.
65 Mr Speaker Sir, there is a significant number of our people with special health needs. In recognition of this, I propose to allocate $500 million for this purpose.
Education
66 Honourable Members may be aware that we have scored significant gains in the
education sector. However, of late the quality of education has been compromised
owing to resource constraints. I, therefore, propose to allocate a total of $2.08 trillion for the two Ministries of Education. Of this amount, $1.52 trillion will be for the Ministry of Education, Sport and Culture and $557.7 billion for Higher and Tertiary Education.
67 The proposed allocations are motivated by the need to provide adequate infrastructure,
basic teaching materials, adequate per capita and equalisation grants.
68 Under Education, Sport and Culture, an amount of $7.7 billion covers tuition and learning materials. I also propose to allocate $11.1 billion as a grant to the Zimbabwe Schools Examination Council, in order to enhance the administration of our examinations.
Science and Technology
69 In view of role that science and technology plays in providing a basis for innovation, value addition and enhancing competitiveness of industry and commerce. I propose to
allocate $20.1 billion for both recurrent and capital budget requirements for SIRDC and the Department of Science and Technology in the Office of the President and Cabinet.
70 Mr Speaker Sir, our success in Tunisia depends on thorough preparation by the national team. In this regard, I propose to allocate $1.4 billion for the Warriors’ Tunisia campaign. This allocation falls under the grant to the Sport and Recreation Commission.
Maintenance of Infrastructure
71 The quality and development of infrastructure in any economy is one of the major
determinants of economic growth. Its maintenance and rehabilitation is critical. I have,therefore, made a total provision of $157.6 billion for infrastructure maintenance in the Budget. Of this amount, $96 billion has been set aside for road maintenance and $25 billion for Government buildings.
Agriculture
72 Mr Speaker Sir, the call for increased funding for agriculture remains imperative. This, however, should be purposefully programmed and targeted to incorporate incentives for private sector involvement.
73 I propose to allocate a sum of $439.8 billion to the Ministry of Lands, Agriculture and Rural Resettlement. This allocation includes a provision of $25 billion for agricultural inputs for communal farmers. Other farmers will benefit from resources under the Agricultural Development Bank. The allocation also includes $15.4 billion for suppression of animal diseases. Allocations to Veterinary Services and Agricultural Research and Extension Services (AREX) have been increased to facilitate vehicle hire, field trials,training and other operational activities.
Mines
74 Honourable Members will be aware that Government is in the process of building
capacity of the Ministry of Mines and Mining Development in response to the challenges we face in the mining sector. This explains my proposed allocation of $22.1 billion to the Ministry. The allocation includes an amount of $5 billion as support to small-scale miners through the Mining Industry Loan Fund.
Local Authority Debt
75 Mr Speaker Sir, Government remains committed to reducing its indebtedness to local
authorities. I propose to allocate $17 billion for this commitment under the Ministry of Local Government, Public Works and National Housing. It is expected that the local authorities concerned will put these resources to critical social and economic programmes.
Defence and Security
76 Mr Speaker Sir, for defence and security, I propose a total allocation of $1.27 trillion for the operations of our forces, with salaries, wages and allowances accounting for $854 billion. Of the total allocation, $661.1 billion is for the Zimbabwe National Army, $128.7 billion for the Air Force, $339.8 billion for Zimbabwe Republic Police and $142.7 billion for
Zimbabwe Prisons Service.
Resource Use
77 Mr Speaker Sir, appreciating the significance of value for money in public spending is
important in reducing wasteful expenditures. It is imperative that we enhance
expenditure tracking, which entails monitoring and evaluation of projects and
programmes from both a physical and financial perspective. I am therefore, proposing
an allocation of $5 billion under my Ministry with a specific subhead which, I have
designated - ‘Implementation and Control of Expenditure Unit (ICEU)’.
78 The monitoring will be undertaken in conjunction with key stakeholders such as the
Portfolio Committees, the Public Service Commission, Comptroller and Auditor General’s Office
Wage Bill
79 Mr Speaker Sir, the brain drain has become an important policy challenge both in
Government and the private sector. It is also pertinent to note that the country is not reaping the dividends from the massive investment in human capital, which the
Government made since independence, as professionals and skilled workers emigrate to
other countries in search of greener pastures. In addition, the high levels of inflation have seriously eroded civil service wages and frequent strikes, particularly in the health sector have dislocated service delivery.
80 In cognisance of the need to address this problem, I have allocated $3.18 trillion for wages and salaries in the civil service. It is my hope that this will, to some extent, go a long way in alleviating the plight of the civil servants.
Capital Expenditure
81 Mr Speaker Sir, as I mentioned above, it is critical that we begin to re-orient our budget towards development projects and programmes. In line with this policy thrust, I intend to increase total capital expenditure from 10% in 2003 to 11.3% in 2004. I propose to allocate $991,3 billion for capital development.
82 Let me now turn to specific proposals for 2004 under the Public Sector Investment
Programme (PSIP).
Rural Capital Development Fund
83 Mr Speaker Sir, currently there are many community based initiatives such as Rural
Development Fund, Community Action Programme, the Integrated Rural Water and
Sanitation Programme and the Dry Areas Development Programme. These have resulted
in the duplication of effort and wastage of resources. I therefore, propose to rationalise these initiatives into a single Rural Capital Development Fund under the co-ordination of the Ministry of Rural Resources and Water Development. I have proposed an allocation of $16 billion to be distributed equally among respective provinces.
Agriculture
84 In order to improve productivity, mitigate the effects of drought and restore the viability of the agricultural sector, I have allocated $587.6 billion to be channelled towards irrigation rehabilitation and development, mechanisation, capitalisation of the Agricultural
Development Bank, livestock production and enhanced extension services.
Transport and Communication
85 In order to strengthen this sector, l propose to allocate $148.5 billion towards
rehabilitation and construction of roads and bridges, procurement of vehicles for CMEDas well as refurbishment of the NRZ’s infrastructure and provision of postal services. The above allocation will also provide for the dualisation of the Harare-Masvingo and Harare- Gweru roads.
Social Sector
86 I propose to allocate $115,2 billion towards construction of facilities at institutions of higher learning, hospitals and secondary schools. Included in this provision is $17,1 billion for the refurbishment and rehabilitation of infrastructure at institutions of higher learning, especially at the University of Zimbabwe where infrastructure has reached an advanced stage of deterioration.
Tourism
87 The tourism sector has quick turn-around potential for generating foreign currency. In recognition of this, I propose to allocate $21 billion towards the refurbishment and upgrading of major airports and tourism facilities. Included in this amount, is a sum of $17.9 billion for upgrading the Harare, Joshua Nkomo and Buffalo Range Airports. A further $2.2 billion has been set aside for the upgrading of tourism facilities in the Gonarezhou Transfrontier Park.
Support to Local Authorities
88 The delivery of critical services such as housing, water, sewer reticulation and health, by local authorities has been constrained by the difficult macroeconomic environment over the years. To address this challenge, I have allocated $40.8 billion in this budget.
Economic Empowerment and Employment Creation
89 In an endeavour to promote and encourage participation of indigenous persons in the development of our economy, I propose to allocate $8.5 billion for the recapitalisation of the Small Enterprise Development Corporation (SEDCO). This institution plays a critical role in the development of Small and Medium Scale Enterprises (SMEs). I also propose to make provision, within this budget, of a further $5 billion as capital injection into the Zimbabwe Development Bank (ZDB). I further propose to allocate $1.5 billion to the
Venture Capital Company of Zimbabwe (VCCZ).
Civil Service Housing Programme
90 Mr Speaker Sir, most civil servants are facing accommodation problems. Honourable
Members will recall that I allocated $1 billion in the 2003 Budget for this programme. I propose to set aside $10 billion for this purpose in the next fiscal year.
Budget Support
91 Honourable Members will appreciate that the cost of service delivery has been escalating on account of inflation. I have therefore had to set aside some resources to take account of this, representing 15% of the overall budget, for contingency budgetary support under my Ministry.
vi) REVENUE PROPOSALS
92 Mr Speaker Sir, in response to consultations held with various stakeholders, the 2004 revenue measures seek to address the following issues:
Enhancement of disposable income in the hands of tax payers thereby stimulating
aggregate demand;
Intensification of revenue collection from the informal sector thereby widening the tax
base; and
Stimulation of economic activity through provision of incentives.
INCOME TAX
Individual
Pay As You Earn (PAYE)
93 Mr Speaker Sir, high levels of inflation have eroded the purchasing power of workers. I therefore, propose to take measures that will give relief to individual taxpayers from the effects of these developments.
94 With effect from 1st January 2004, I propose to increase the individual income tax
threshold from $180 000 to $2 400 000 per annum and also widen the income tax bands
to end at $4,5 million above which income will be taxed at 45%. This measure will
release $1,2 trillion to taxpayers.
Bonus
95 Bonus represents additional income to taxpayers, which they use to purchase durable consumer goods. In view of the surge in inflation I also propose to increase the tax-free portion of the bonus or performance related award from $20 000 to $100 000 with effect from 1st November 2003, thereby releasing $14.4 billion to the taxpayers.
Credits
96 Income tax credits are used to alleviate the tax burden on the elderly, blind and disabled.I propose to increase the income tax for the elderly, blind and disabled from $20 000 to $120000 with effect from 1st of January 2004.
Tax Free Pension Contribution
97 Pension contributions are an important part of savings mobilisation in any economy. The value of these pension contributions have however, been adversely affected by the current high rate of inflation. I propose to increase the allowable tax free pension contribution from $90 000 to $720 000 per annum with effect from 1st January 2004.
Commutation from Pension and Provident Fund
98 The tax-free portion on a commutation of a pension is currently pegged at $250 000 or one third of a lump sum whichever is greater. I propose to increase the tax-free portion to one million or one third of the lump sum whichever is greater with effect from 1st January 2004.
Contribution to Pension/ Retirement Annuity Funds
99 Mr Speaker Sir, the Pension and Provident Funds regulations provide that the aggregate maximum yearly contributions that a member can make to a Pension/Retirement Annuity
Fund should be limited to 25% of the member’s gross salary as declared for tax purposes in the previous year. In order to enhance savings, I propose to remove the restriction with effect from 1st January 2004.
Severance Package
100 Severance packages are a source of income that can be used to start up small to medium scale enterprises. It is therefore important that taxpayers remain with a large portion of
disposable income after tax. The tax-free severance package is currently pegged at $300000 or 1/3 of $1, 5 million whichever is greater. I propose to increase the tax-free
portion of the severance package to $1,5 million or one third of the severance package.
DEEMED BENEFITS
Motor Vehicles
101 The current threshold of motor vehicle deemed benefits range from $240 000 to $900000 depending on the engine capacity. I take full cognisance of the fact that the motor vehicle benefit is important to retain skills. However the cost of maintenance of thesevehicles has escalated due to the currently obtaining high inflation. I therefore propose
to increase the benefits as follows:
Engine Capacity Proposed Deemed Benefit
Up to 1500 cc $600 000
1501 to 2000.cc $1 260 000
2001 to 3000 cc $2 480 000
Over 3000 cc $3 312 000.
Carbon Tax
102 Mr Speaker Sir, I propose to review the rates of carbon tax with effect from 1st January 2004, as follows:
Engine Capacity Tax Level
Up to 1500 cc $20 000
1501 to 2000 cc $35 000
2001 to 3000 cc $50 000
Over 3000 cc $100 000
COMPANIES AND TRUSTS
Corporate Tax
103 Mr Speaker Sir, corporate tax is currently pegged at a rate of 30%. I propose to
maintain the corporate tax rate at the current level.
Capital Allowances
104 Capital allowances are one of the incentives that enhance productivity of companies. The value of these incentives has however been eroded by inflation. I propose the following adjustments with effect from 1st January 2004
Passenger motor vehicles: - from $1 million to $10 million
Staff housing: - from one million with upper of limit of $3 million to $15 million with an upper limit of $50 million
Schools hospitals and clinics: - from $10 million to $50 million
Deposit Protection Scheme
105 One of the objectives of the Deposit Protection Scheme is to build a sustainable fund, from which depositors will be paid should a financial institution fail. In the absence of such a fund, the fiscus may be called upon to bear the responsibility for reimbursing depositors or bailing out failing banks. The introduction of the Scheme will contribute towards the stability of Zimbabwe’s financial system. I therefore propose to exempt the Scheme from income tax and withholding tax on interest with effect from 1st January
2004.
Allowable Deductions in Respect of Donations
106 Maximum allowable deductions in respect of donations to schools, hospitals and clinics, research and development were fixed during the last fiscal year. In order to encourage private sector participation, I propose to increase the allowable deductions, with effect from 1st January 2004, as follows:
Schools: from $10 million to $100 million;
Hospitals and Clinics: from $10 million to $100 million;
Research and Development: from $20 million to $100
million.
107 I further propose to introduce a section, which allows for the deduction of amounts donated to the Public - Private Partnership Fund to a maximum of $100 million.
Convention Attendance
108 The maximum allowable expenditure for attendance of a convention or trade mission is currently pegged at $100 000 incurred during the year of assessment. In view of the importance of trade missions in promoting exports, I propose to increase the maximum allowable expenditure to $5 million with effect from 1st January 2004.
Royalties
109 Mr Speaker Sir, the Mining Tax Regime, which was introduced in 2001, included royalties among other measures. Collection of royalties will commence on the 1st of January 2004.
In line with regional and international practice, I propose that the Income Tax Act be amended to allow for deduction of expenditure on royalties with effect from 1st January 2004.
Thin Capitalisation
110 Mr Speaker Sir, to close loopholes under which companies in the same group claim tax deductions on interest charges arising from intra-company lending, I propose to extend the thin capitalisation provisions that are currently applied on the mining sector to other sectors with effect from 1st January 2004.
Automated Financial Transactions Tax
111 The automated financial transaction tax is currently charged at the rate of $5 for each transaction. Due to the higher inflation, I propose to increase the rate to $50 for each transaction with effect from 1st January 2004.
Revenue Protection Measures
112 Mr Speaker Sir, due to rampant tax evasion, it has become necessary to empower the Commissioner General to estimate PAYE not remitted within the required period.
113 I further propose to realign the Statutory Rate of Interest to the prevailing Treasury Bills rate. ZIMRA will also be required to pay interest at the same rate on delayed payment of refunds due to taxpayers.
114 In addition, the Income Tax Act will be amended to enable interest on withholding tax to become payable after due date. The Customs & Excise Act will also be amended to provide for the charging of interest on duty paid after the time of importation and the penalty rate will be increased for repeating offenders from 100% to 300%.
STAMP DUTY
Marketable Securities
115 Stamp duty is chargeable on marketable securities at a rate of $1 for every $100 or part thereof. The rate was last reviewed in 2001. I propose to increase the rate to $5 for every $100.
Cheques
116 Currently the stamp duty payable on any cheque is $5. I propose to increase the amount to $50.
CAPITAL GAINS
Inflation Allowance
117 The inflation allowance used in the calculation of capital gains tax is currently pegged at 50%. In view of the hyperinflationary environment, I propose to increase the inflation allowance to 100% of original cost with effect from 1st January 2004.
Withholding Capital Gains Tax
118 Under the withholding tax on capital gains, a tax clearance certificate is required before property transfer. With effect from 1st January 2004, I propose to waive this requirement in the following circumstances:
• Transfers ordered by the Court ,
• Sale in execution of immovable property by the Sheriff of the High Court, and
• Where the transaction is wholly financed by a Building Society.
ESTATE DUTY
119 Mr Speaker Sir, estate duty rebates are currently pegged at $5 million and $10 million in
respect of a surviving spouse or surviving minor children, respectively. I propose to
increase the rebates to $20 million and $40 million where there is a surviving spouse or surviving minor children, respectively.
Value Added Tax (VAT)
Rate
120 Mr Speaker Sir, VAT will replace Sales Tax with effect from 1st January 2004. I propose to introduce VAT at a standard rate of 15%.
Registration/Refunds Thresholds, Zero Rating & Exemptions
121 I propose that registration/refunds thresholds, zero rating and exemptions be moved from the Principal Act to subsidiary legislation.
VAT EXEMPTIONS
Agricultural Machinery
122 In order to support agricultural activities and boost productivity in this sector, I propose to expand the exemption schedule to include agricultural machinery.
TOURISM
Accommodation & Other Services Paid For In Foreign Currency
123 Under the current Sales Tax legislation, sales tax is not payable on accommodation and other tourism related services provided non-residents pay for them in foreign currency. I propose to extend this provision under the Value Added Tax.
124 Mr Speaker Sir, I further propose to expand the exemption list to include the following:
• Hospitals and Nursing homes
• Educational services
• Financial services and
• Fuel.
NOCZIM Debt Redemption Levy
125 Before the liberalisation of fuel procurement, amortisation of the Noczim debt was part of the pump price build up. In view of the many Direct Fuel Importers now involved, I propose a levy of $110 per litre of diesel and petrol, both leaded and unleaded, to be collected at the point of entry by ZIMRA. This measure is effective from 1st December 2003 and does not include illuminating paraffin and aviation fuel.
CUSTOMS DUTY
Selected Goods Imported by Local Authorities
126 In support of improving provision of such Local Authority amenities as refuse collection, road maintenance etc, I propose to remove duty on refuse collection and road maintenance trucks with effect from 1st December 2003.
Commuter Omnibus Transport
127 In order to ease commuter omnibus transport problems, I propose suspension of
customs duty on commuter omnibus with a carrying capacity of 26 passengers and
above. This is with effect from 1st December 2003.
EXCISE DUTY
128 Mr Speaker Sir, specific rates of duty on spirits have not been adjusted for a long time. I ropose to convert the specific rate on spirits to 10% per litre with effect from 1st December 2003.
129 I further propose to reduce excise duty on the following products with effect from January 1, 2004 as follows:
• Aerated waters from 15% to 5%
• Cigarettes and tobacco from 85% to 60%
• Opaque Beer from 10 to 0%
• Clear beer from 60% to 40%.
130 Value added tax at a standard rate of 15% will be levied on the above products with effect from January 1, 2004.
Building Societies Paid Up Permanent Shares (PUPS)
131 Last year, I reviewed limits on individual and corporate deposits in tax-free Class C Paid Up Permanent Shares with Building Societies to $5 million and $3.5 million respectively.
In light of the inflationary developments, I propose to increase the limits to $20 million for individuals and $14 million for corporations.
Peoples Own Savings Bank (POSB) Fixed Deposits
132 In the same vein, I propose to raise the limit on POSB fixed deposits from $5 million for
individuals and $3.5 million for corporates to $20 million and $14 million respectively.
This will assist in increasing the flow of deposits into the bank.
vii) FINANCING
133 Mr Speaker Sir, the projected low levels of external inflows, means that the bulk of the deficit of $1.85 trillion will have to be financed domestically. This underlines the importance of improving revenue performance, avoiding expenditure over runs and speeding up the pace of privatisation.
134 In order to avoid bunching up of public debt service, I will during 2004 institute measures to further restructure domestic debt in consultation with financial community. I am pleased to note commitments to support this exercise as contribution to bring down inflation and foster sustained growth and development.
viii) CONCLUSION
135 In this environment, Mr Speaker Sir, we cannot afford to do business as usual. We need to adequately appreciate the magnitude of the macroeconomic challenges facing us.
This is critical for the introduction and implementation of fully informed policy responses.
It is also imperative that we avoid reversals on agreed policy positions and aborting
painful measures mid way through implementation.
136 It is vital that measures to revive domestic production and exporting are expeditiously implemented. Confidence building, policy consistency and political commitment in policy implementation, re-engagement of partners within the TNF are also critical in fighting inflation and stabilising the economy.
137 It is also vital that we protect the integrity and credibility of the budget as an instrument of economic management. This will require that all Ministries and Departments demonstrate their commitment by living within their allocations and the agreed budget framework. Mr Speaker Sir, the role of the Parliamentary Portfolio Committees will be critical in ensuring that this happens.
138 Failure to implement agreed measures can only send wrong signals, fuelling self-fulfilling inflationary expectations. We should now address these challenges in earnest, if the economy is to be turned around.
139 Mr Speaker Sir, our future lies in our own hands. The challenges that confront us are surmountable provided we show unity of purpose. As one Nina O’nill once said, ‘‘Out of every crisis comes the chance to be reborn’’.
I THANK YOU
HARARE
November 20, 2003.
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