News analysis: Agriculture to dictate 2006 economic growth in Zimbabwe

by Shame Makoshori, Gao Shixing
HARARE, Dec 22, 2005 (Xinhua via COMTEX) - The development of Zimbabwe's economy in 2006 will hinge on the performance of the current rainy season and the normalization of international relations to re- attract the world's leading multilateral lending institutions such as the International Monetary Fund.

The Zimbabwean government has predicted a steady agricultural led economic growth rate of between two and three percent in 2006.

Agriculture is projected to register a 14.8 percent positive growth on the back of a normal rainy season, increased hectares under irrigation and the timely provision of critical inputs as well as the introduction of targeted production program to promote food security.

However, economic analysts said whether these targets would be achieved rests squarely on the performance of the rainy season, which has so far exhibited signs of a return to normalcy after a five-year lull.

The analysts said increased agricultural output would release pressure on prices but this would largely be felt in the second half of the year when crop sales begin, that is if the rains persist. Even the exchange rate hinges on the performance of agriculture, manufacturing and the performance of exports.

But not much is expected to happen because the government has cut down on taxation and increased its expenditure.

This will mean that inflation will continue shooting up and will have negative implications on interest rates and money supply growth.

Analysts predicted a 600 percent inflation figure for December 2005 that will decelerate to 400 percent by the second half of the year depending on agricultural output and ending the year between 100 and 200 percent.

The governor of the central bank of Angola Amadeu Mauricio last moth said Zimbabwe should commit to fighting inflation because out of all negative economic variables that hit economies, inflation remains the most dangerous and if not properly managed could wreck promising economies.

Zimbabwe's Finance Minister, Herbert Murerwa on December 1 presented a 128 trillion Zimbabwean dollars (1 US dollar = 60, 000 Zimbabwean dollars) budget proposal for 2006 that largely reflects the government's resolve to fight inflation through expenditure restraint.

Murerwa said the government intended to use 128 trillion Zimbabwean dollars on recurrent and capital expenditure against fiscal revenue of 110 trillion Zimbabwean dollars to create a budget deficit of 13.9 trillion Zimbabwean dollars or 4.6 percent of the country's Gross Domestic Product.

The minister said the budget deficit of 4.6 percent of GDP was expected to be consistent with the end of 2006 inflation target of 80 percent and the 2-3.5 percent-targeted real GDP growth rate for the year.

Agricultural performance would dictate economic growth, but the fluctuations in international oil prices were also a major factor, which authorities had little to do in terms of control.

The availability of fuel would determine whether the prices would go up or down and this would also have far reaching effects on whether the prices of export crops would fetch viable prices on the international markets.

Major export crops include tobacco, flowers, fruits and others have experienced a decline in output due to mainly persistent droughts.

This has made the need for an irrigated crop imperative but despite constant allocation of funds for the rehabilitation of irrigation systems by the government, the 2006 budget did not give the program the prominence that it deserves.