This record is a partial extract of the original cable. The full text of the original cable is not available.

221628Z Nov 00


                           CONFIDENTIAL     PTQ4894

PAGE 01        HARARE  06566  01 OF 04  221629Z 
ACTION AF-00    

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      L-00     VCE-00   AC-01    NSAE-00  OMB-01   OPIC-01  PA-00    
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                  ------------------A2C816  221630Z /38    
FM AMEMBASSY HARARE
TO SECSTATE WASHDC PRIORITY 7684
INFO DEPT OF TREASURY WASHDC
SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
USDOC WASHDC
NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 HARARE 006566 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC, 
TREASURY FOR ED BARBER AND BARAK HOFFMAN 
DOC FOR 4510 HENDERSON 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
STATE PASS USTR FOR ROSA WHITTAKER 
 
E.O. 12958: DECL: 11/22/08 
TAGS: EFIN ECON PGOV BEXP ZI
SUBJECT: ZIMBABWE'S 2001 BUDGET; A REALISTIC, AND TOO 
                       CONFIDENTIAL 
 
 
PAGE 02        HARARE  06566  01 OF 04  221629Z 
OPTIMISTIC, EFFORT 
 
REF: A) 1999 HARARE 6723 
 
CLASSIFIED BY AMBASSADOR MCDONALD.  REASONS 1.5 (B) AND (D) 
 
------- 
SUMMARY 
------- 
 
¶1. (C) ON NOVEMBER 16 ZIMBABWE'S MINISTER OF FINANCE AND 
ECONOMIC DEVELOPMENT, SIMBA MAKONI, ANNOUNCED ZIMBABWE'S 2001 
BUDGET IN A READING BEFORE PARLIAMENT.  IN OUR OPINION THE 
BUDGET HONESTLY DEPICTS THE SEVERE ECONOMIC CRISIS THE NATION 
IS TRAPPED IN, IS CREATIVE IN ITS ATTEMPTS TO ADDRESS 
PROBLEMS, BUT WILL FAIL TO SLASH THE DEFICIT AS PROJECTED. 
(IT SETS DEFICIT TARGETS OF 15 PERCENT OF GDP IN 2001, 9 
PERCENT IN 2002 AND 4 PERCENT IN 2003.)  DOMESTICALLY, THE 
BUDGET HAS RECEIVED MIXED REVIEWS.  ON THE ONE HAND MANY 
ZIMBABWEANS ARE APPRECIATIVE OF THE HONEST ASSESSMENT OF THE 
CURRENT ECONOMIC CRISIS.  ON THE OTHER HAND, THERE IS SERIOUS 
DOUBT THAT SOME OF THE CREATIVE MEASURES HAVE ANY CHANCE OF 
BEING IMPLEMENTED OR FOLLOWED THROUGH IN THE CURRENT 
POLITICALLY-DRIVEN CLIMATE OF PRESIDENT MUGABE. ANOTHER 
REASON BEHINDS ITS POSITIVE RECEPTION IN SOME QUARTERS IS THE 
UNPRECEDENTED EXTENSIVE CONSULTATION PROCESS THE FINANCE 
MINISTER INSTITUTED DURING ITS DRAFTING. 
 
¶2. (SBU) THE BUDGET PROJECTS TOTAL EXPENDITURES OF ZIM $224 
BILLION (APPROXIMATELY U.S. $4.7 BILLION, 2.6 BILLION OF 
WHICH IS INTEREST ON THE DEBT), A 57 PERCENT INCREASE FROM 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  06566  01 OF 04  221629Z 
THIS YEAR'S REVISED OUTLAY OF ZIM $143 BILLION (APPROXIMATELY 
U.S. $2.6 BILLION).  REVENUE OF ZIM $140 BILLION IS 
PROJECTED, LEAVING A BUDGET DEFICIT OF ZIM $86 BILLION (U.S. 
$1.6 BILLION), OR 15.5 PERCENT OF PROJECTED 2001 GDP. 
 
¶3. (C) HIGHLIGHTS OF THE 2001 BUDGET INCLUDE THE CONTINUATION 
OF THE THREE PERCENT HIV/AIDS LEVY, A CUT IN THE TOBACCO LEVY 
FROM 2.5 TO 1.5 PERCENT, INTRODUCTION OF A COMPUTERIZED CASH- 
BUDGET SYSTEM AIMED AT STOPPING BUDGET OVERRUNS, A ZIM $1.3 
BILLON ALLOCATION FOR LAND RESETTLEMENT (ABOUT U.S. $23.6 
MILLION), A 13 PERCENT DECREASE FOR DEFENSE SPENDING (IN 
NOMINAL TERMS), AND AN 18 PERCENT NOMINAL INCREASE FOR HEALTH 
SPENDING.  THE BUDGET ALSO INTRODUCES A CAP ON THE CIVIL 
SERVICE WAGE BILL, FROM THE CURRENT 16.7 PERCENT OF GDP DOWN 
TO 12 PERCENT. HOW THIS WILL BE ACHIEVED IS NOT SPELLED OUT. 
 
¶4. (C) OVERALL WE ASSESS THE BUDGET AS A GOOD EFFORT 
CONSIDERING THE ECONOMIC, SOCIAL AND POLITICAL CONTEXT. ON 
THE POSITIVE SIDE IT IS NOT A HEAD-IN-THE-SAND EFFORT, AND IT 
LAYS THE BASIS FOR AN ATTEMPT AT REOPENING DISCUSSIONS WITH 
THE INTERNATIONAL FINANCIAL INSTITUTIONS.  ON THE NEGATIVE 
SIDE IT FALLS SHORT IN ADDRESSING THE PROBLEM OF HOW 
INFLATION WILL BE TAMED, IT ASSUMES THAT FISCAL DISCIPLINE 
WILL TAKE ROOT, AND IT IS EXCESSIVELY OPTIMISTIC IN 
PROJECTING REVENUE IN A RAPIDLY SHRINKING ECONOMY, THEREBY, 
UNDERESTIMATING, IN OUR OPINION, NEXT YEAR'S DEFICIT.  THE 
MINISTERIAL ALLOCATIONS, WHICH ARE ALL REDUCED IN REAL TERMS 
AFTER FACTORING IN INFLATION WILL RESULT, IN OUR OPINION, IN 
ANOTHER SUPPLEMENTAL BUDGET BEING REQUIRED SOMETIME IN THE 
SECOND HALF OF NEXT YEAR.  IN ADDITION AND IN THE END, 
ACTIONS MUST MATCH THE RHETORIC AND WORDS.  WE ARE SKEPTICAL 
                       CONFIDENTIAL 
 
PAGE 04        HARARE  06566  01 OF 04  221629Z 
THAT MAKONI WILL GET OR ACHIEVE ALL HE AMBITIOUSLY SETS OUT 
TO ACCOMPLISH.  END SUMMARY. 
 
-------------------------------------------- 
THE EXTENT AND CAUSES OF THE ECONOMIC CRISIS 
-------------------------------------------- 
 
¶5.  (SBU) INQS BUDGET SPEQ MINISTER MAKONI WAS BLUNT IN 
HIS ASSESSMENT AND LISTING OF THE CAUSES OF ZIMBABWE'S 
ECONOMIC CRISIS, PAINTING A STARK PICTURE OF DAY-TO-DAY 
HARDSHIP FOR THE AVERAGE ZIMBABWEAN.   HE ADMITTED THAT THE 
CURRENT HARSH CONDITIONS HAD TURNED ZIMBABWE INTO A 
CARICATURE OF COLONIAL-ERA POVERTY AND OPPRESSION; WITH 
DEEPENING POVERTY, GROWING UNEMPLOYMENT, SHORTER WORKING 
HOURS, RISING COSTS AND A DECLINE IN THE DELIVERY OF SOCIAL 
SERVICES.  OTHER SYMPTOMS OF THE CRISIS CITED IN THE SPEECH 
INCLUDE THAT MANY FAMILIES CAN NO LONGER AFFORD MORE THAN ONE 
MEAL A DAY, THAT WORKERS - UNABLE TO PAY TRANSPORT COSTS - 
WALK OR CYCLE TO THEIR PLACE OF EMPLOYMENT, FEWER CAN MAKE 
VISITS TO THEIR RELATIVES IN THE RURAL AREAS, AND FAMILIES 
AND SOCIETY AS A WHOLE ARE INCREASINGLY FAILING TO CARE FOR 
THE NEEDY.  THE CAUSES OF THE ECONOMIC CRISIS WERE OUTLINED 
AS: 
 
O  "UNCERTAINTY" OVER SEIZURES OF WHITE-OWNED LAND; 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ4897 
 
PAGE 01        HARARE  06566  02 OF 04  221629Z 
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      L-00     VCE-00   AC-01    DCP-01   NSAE-00  OMB-01   OPIC-01 
      PA-00    PM-00    PRS-00   ACE-00   P-00     SP-00    IRM-00 
      SSO-00   STR-00   USIE-00  FMP-00   R-00     PMB-00   DSCC-00 
      DRL-02   G-00     NFAT-00  SAS-00     /010W 
                  ------------------A2C82E  221630Z /38 
P 221628Z NOV 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC PRIORITY 7685 
INFO DEPT OF TREASURY WASHDC 
SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
NSC WASHDC 
 
C O N F I D E N T I A L SECTION 02 OF 04 HARARE 006566 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC, 
TREASURY FOR ED BARBER AND BARAK HOFFMAN 
DOC FOR 4510 HENDERSON 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
STATE PASS USTR FOR ROSA WHITTAKER 
 
E.O. 12958: DECL: 11/22/08 
TAGS: EFIN ECON PGOV BEXP ZI
SUBJECT: ZIMBABWE'S 2001 BUDGET; A REALISTIC, AND TOO 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  06566  02 OF 04  221629Z 
OPTIMISTIC, EFFORT 
 
O  "PERCEPTIONS" OF THE LACK OF THE RULE OF LAW; 
O  THE COST OF MILITARY INVOLVEMENT IN THE CONGO; 
O  INCREASING CORRUPTION; AND, 
O  THE GROWING FREQUENCY AND MAGNITUDE OF UNBUDGETED 
EXPENDITURES. 
 
----------------- 
BUDGET HIGHLIGHTS 
----------------- 
 
¶6.  (SBU) KEY PROPOSALS CONTAINED IN THE 2001 BUDGET ARE: 
 
=  TOTAL GOVERNMENT SPENDING TO INCREASE 57 PERCENT (NOMINAL 
TERMS); 
=  MORE THAN HALF THIS SPENDING IS INTEREST ON NATIONAL DEBT; 
=  TOTAL MINISTERIAL SPENDING DROPS ABOUT 20 PERCENT IN 
NOMINAL TERMS; 
=  IN REAL TERMS (ASSUMING 50 PERCENT INFLATION) THIS AMOUNTS 
TO MORE THAN A 50 PERCENT DROP IN GOVERNMENT PROGRAM 
SPENDING); 
=  OVERALL THE BUDGET IS PRO-CONSUMER AND PRO-BUSINESS (LOW & 
MIDDLE INCOME WORKERS GET TAX RELIEF AND BUSINESS IS 
GENERALLY LESS-HEAVILY TAXED); 
=  THE CORPORATE TAX RATE IS REDUCED FROM 35 TO 30 PERCENT; 
=  A SPECIAL BREAK FOR MINING COMPANIES (TO ENCOURAGE 
INVESTMENT) REDUCES THEIR TAX RATE TO 25 PERCENT; 
=  ZIM $1.3 BILLION IS ALLOCATED FOR LAND RESETTLEMENT (ABOUT 
U.S. $23 MILLION) 
=  CIVIL SERVICE WAGE COSTS ARE CAPPED AT 12 PERCENT OF GDP 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  06566  02 OF 04  221629Z 
V.S. THIS YEAR'S ESTIMATED 16.7 PERCENT COST (SPECIFICS OF 
IMPLEMENTATION ARE NOT PROVIDED); 
=  THE DEFENSE DROP OF 13.5 PERCENT HINGES ON "THE 
ANTICIPATED POSITIVE OUTCOME OF INITIATIVES TO BRING PEACE TO 
THE DRC"; 
=  PROJECTED REVENUE (AT ZIM $140 BILLION OR ABOUT U.S. 2.55 
BILLION) INCREASES ARE FUNDED PRIMARILY BY A SURGE IN INCOME 
TAX (82 PERCENT) AND CUSTOMS DUTIES AND SALES TAXES (42 
PERCENT); 
=  INTERNATIONAL DEVELOPMENT ASSISTANCE IS BUDGETED AT ZERO; 
=  CAPITAL EXPENDITURE IS AGAIN REDUCED; 
=  THERE ARE NO SPECIFIC MEASURES IN THE NEW BUDGET TO COMBAT 
HIGH INFLATION/INTEREST RATES; 
=  A COMPUTERIZED CASH-BUDGET SYSTEM IS INTRODUCED TO CURB 
OVER-BUDGET SPENDING (CALLED THE PUBLIC FINANCE MANAGEMENT 
SYSTEM), AND; 
=  THE BUDGET DEFICIT IS VERY CONSERVATIVELY ESTIMATED TO BE 
ONLY 15.5 PERCENT OF GDP IN 2001. 
 
¶7.  (SBU) MINISTRY-BY-MINISTRY AND TOTAL YEAR 2001 NOMINAL 
SPENDING INCREASES FROM REVISED 2000 AMOUNTS ARE: 
 
MINISTRY              PERCENT INCREASE 
-------------------------------------- 
 
PRESIDENT&CABINET     NIL 
PARLIAMENT            5 PERCENT 
LABOR&SOCIAL WELFARE  12 PERCENT 
RURAL&WATER RESOURCES NIL 
DEFENSE               -13.5 PERCENT 
                       CONFIDENTIAL 
 
PAGE 04        HARARE  06566  02 OF 04  221629Z 
FINANCE               282 PERCENT 
LAND&AGRICULTURE      43 PERCENT 
EDUCATION&CULTURE     2 PERCENT 
MINES&ENERGY          6 PERCENT 
TRANSPORT&COMMUNICA.  63 PERCENT 
INDUSTRY&INT'L TRADE  26 PERCENT 
LOCAL GOVT&HOUSING    -11 PERCENT 
HIGHER EDUC&TECHNOLOGY 5.6 PERCENT 
HEALTH&CHILD WELFARE  18 PERCENT 
FOREIGN AFFAIRS       -9 PERCENT 
HOME AFFAIRS          -5 PERCENT 
 
TOTAL BUDGET INCREASE   36 PERCENT 
-OF WHICH- 
GOODS&SERVICES INCREASE 13 PERCENT 
TRANSFER PAYMENTS       72 PERCENT 
 
¶8. (SBU) THE VERY LARGE FINANCE MINISTRY INCREASE OF 282 
PERCENT IS CAUSED BY A SWELLING OF THE UNALLOCATED RESERVE 
LINE ITEM FROM ZIM $2.3 BILLION TO ZIM $11.8 BILLION 
(APPROXIMATELY U.S. $214 MILLION).  THE RESERVE IS THE GOZ 
CONTINGENCY AND EMERGENCY FUND, AND HAS BEEN INCREASED 
SUBSTANTIALLY TO HAVE AN IDENTIFIABLE SOURCE OF FUNDS FOR 
EMERGENCIES OR NATURAL DISASTERS (LIKE CYCLONE ELINE THIS 
YEAR) TO DISPENSE TO APPROPRIATE MINISTRIES VIA THE NEW 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ4899 
 
PAGE 01        HARARE  06566  03 OF 04  221630Z 
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INFO  LOG-00   NP-00    AID-00   CEA-01   CIAE-00  CTME-00  INL-00 
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      L-00     VCE-00   AC-01    NSAE-00  OMB-01   OPIC-01  PA-00 
      PM-00    PRS-00   ACE-00   P-00     SP-00    SSO-00   STR-00 
      USIE-00  FMP-00   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00 
      SAS-00     /009W 
                  ------------------A2C84C  221630Z /38 
P 221628Z NOV 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC PRIORITY 7686 
INFO DEPT OF TREASURY WASHDC 
SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
NSC WASHDC 
 
C O N F I D E N T I A L SECTION 03 OF 04 HARARE 006566 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC, 
TREASURY FOR ED BARBER AND BARAK HOFFMAN 
DOC FOR 4510 HENDERSON 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
STATE PASS USTR FOR ROSA WHITTAKER 
 
E.O. 12958: DECL: 11/22/08 
TAGS: EFIN ECON PGOV BEXP ZI
SUBJECT: ZIMBABWE'S 2001 BUDGET; A REALISTIC, AND TOO 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  06566  03 OF 04  221630Z 
OPTIMISTIC, EFFORT 
 
COMPUTERIZED CASH BUDGET ACCOUNTING/PAYMENT SYSTEM.  THE LAND 
AND AGRICULTURE BUDGET INCREASE (FROM ZIM $2.8 TO $4 BILLION) 
IS CAUSED BY A SIX-FOLD INCREASE IN THE ALLOCATION OF $1.3 
BILLION FOR THE LAND RESETTLEMENT PROGRAM.  (THOUGH THE U.S. 
$23 MILLION EQUIVALENT FALLS FAR SHORT OF THE FUNDS NEEDED TO 
PAY FOR EVEN A SMALL PORTION OF THE ACREAGE TO BE SEIZED, OR 
THE INFRASTRUCTURE, INPUTS OR OTHER NEEDS OF THE RESETTLED 
LAND-POOR.)  THE TRANSPORT AND COMMUNICATION INCREASE OF 63 
PERCENT IS CAUSED BY A ZIM $900 MILLION ALLOCATION FOR ROAD 
MAINTENANCE, A SPENDING PRIORITY IGNORED IN RECENT YEARS AND 
CONSIDERED NECESSARY BY THE FINANCE MINISTER TO KEEP THE 
ZIMBABWE'S HIGHWAYS AND ROAD CROSSINGS USABLE BY COMMERCE. 
THE VERY LARGE TRANSFER PAYMENT INCREASE OF 72 PERCENT SHOULD 
BE NOTED (FROM ZIM $75 TO $130 BILLION), AS IT IS NON- 
DISCRETIONARY PAYOUT FOR INTEREST, PENSIONS AND WAR VET 
ANNUITIES. 
 
------------------ 
GOVERNMENT REVENUE 
------------------ 
 
¶9.  (SBU) TOTAL GOVERNMENT REVENUES ARE PROJECTED TO GROW 55 
PERCENT TO ZIM $140.3 BILLION (OR ABOUT U.S. $2.55 BILLION, A 
6 PERCENT GROWTH RATE IN U.S. DOLLAR TERMS FROM LAST YEAR) 
FROM ZIM $90.2 BILLION.  TAXES ON INCOME AND PROFITS, THAT 
MAKE UP A LITTLE OVER HALF OF 2001 REVENUE, ARE SLATED TO 
GROW BY 71 PERCENT.  GIVEN THAT THE GROSS DOMESTIC PRODUCT IS 
SIMULTANEOUSLY PROJECTED TO SHRINK BY ABOUT 3 PERCENT IN THE 
SAME BUDGET, WE VIEW THE REVENUE TARGET AS BEING EXTREMELY 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  06566  03 OF 04  221630Z 
OPTIMISTIC, THE MORE SO AS TAXES FOR LOW AND MIDDLE INCOME 
EARNERS WERE ADJUSTED DOWNWARD TO BOOST CONSUMER DEMAND. 
 
¶10.  (C) THE BUDGET STATES THAT INTERNATIONAL AID GRANTS WILL 
BE ZERO.  IT ALSO PROJECTS THAT THE DISPOSAL OR PRIVATIZATION 
OF STATE-OWNED COMPANIES SHOULD EARN ZIM $22 BILLION (ABOUT 
U.S. $400 MILLION) IN 2001.  WE QUESTION IF SUCH AN 
AGGRESSIVE ASSET SALES PROGRAM CAN BE CARRIED OUT NEXT YEAR, 
AND IF THE EXPECTED PROCEEDS TOTAL IS REALISTIC GIVEN THE 
CONDITION OF NEARLY ALL OF ZIMBABWE'S PARASTATAL COMPANIES 
(BALANCE SHEETS EXTREMELY IN THE RED AND DILAPIDATED/OUTMODED 
ASSETS), AND ZIMBABWE'S EXTREMELY POOR TRACK RECORD TO DATE 
IN SELLING-OFF STATE ASSETS.  ALSO OF NOTE IS THE FACT THAT 
THE FINANCE MINISTER APPLIES THE PROCEEDS OF PRIVATIZATION TO 
THE PAYDOWN OF GOVERNMENT DEBT.  PREVIOUSLY THE GOVERNMENT 
HAS ALWAYS STATED THAT THE PROCEEDS WILL GO SOLELY TOWARDS 
INDIGENIZATION. 
 
¶11. (C) THE MINISTER ALSO MENTIONED IN HIS SPEECH THAT THE 
GOVERNMENT IS OWED "HANDSOME AMOUNTS BY BENEFICIARIES OF 
PROGRAMS SUCH AS THE WAR VETERANS COMPENSATION FUND, THE 
GOVERNMENT HOUSING SCHEME, THE GRAIN LOAN SCHEME, COMMODITY 
IMPORT PROGRAMS AND THE EARLY INDIGENIZATION FUNDS.  EFFORTS 
WILL BE MADE, THEREFORE, TO COLLECT THESE MONIES."  ALL THE 
FOREGOING ARE CASES OF BLATANT LARGE-SCALE THEFT AND 
CORRUPTION AT THE HIGHEST LEVELS OF LEADERSHIP, AND WHAT, IF 
ANY, PROGRESS IS MADE ON RECOVERY OR PROSECUTION WILL BE 
WORTHY OF OBSERVATION.  (EMBASSY COMMENT: WE SUSPECT THAT THE 
FINANCE MINISTRY'S EFFORTS TO DELVE INTO THE MURKY CORRUPTION 
REALM WILL GO NOWHERE IN THE PRESENT ENVIRONMENT.  END 
COMMENT.)  THE LION'S SHARE OF THE REMAINING BUDGET INCOME IS 
                       CONFIDENTIAL 
 
PAGE 04        HARARE  06566  03 OF 04  221630Z 
DERIVED FROM SALES TAX AND CUSTOMS AND EXCISE DUTIES.  THESE 
ARE SLATED TO GROW BY 48 PERCENT.  AGAIN IN A HIGH INFLATION, 
NEGATIVE GDP GROWTH, ENVIRONMENT AND, WITHOUT RATE INCREASES, 
WE DO NOT UNDERSTAND HOW SUCH REVENUE GROWTH WILL BE 
ACHIEVED.  AGAIN, THE IMPLICATION IS THAT A MUCH HIGHER 
DEFICIT WILL LIKELY ENSUE. 
 
--------------------------------------------- ------ 
¶12. (C) FUNCTIONAL BREAKDOWN OF 2001 EXPENDITURE: 
--------------------------------------------- ------ 
 
=  INTEREST: IS SCHEDULED TO RISE IN PERCENTAGE TERMS FROM 32 
PERCENT OF THE BUDGET IN 2000 TO ABOUT 41 PERCENT NEXT YEAR. 
THE INTEREST BILL REMAINS NOMINALLY THE SAME DESPITE THE NEED 
TO FINANCE A VERY LARGE DEFICIT, BECAUSE THE GOZ INTENDS TO 
RESTRUCTURE ITS DEBT BY CONVERTING SOME TO LONG TERM BONDS 
(WITH A REVERSE YIELD CURVE).  WE QUESTION IF THE ANTICIPATED 
SAVINGS WILL BE REALIZED. (THE DEFICIT NEXT YEAR IS PROJECTED 
TO BE ABOUT ZIM $83 BILLION, OR ABOUT U.S. 1.6 BILLION AT 
CURRENT RATES.  AT A NOTIONAL INTEREST RATE OF 50 PERCENT, 
THE INTEREST ALONE ON THE NEW DEBT IS ABOUT U.S. $2 MILLION 
PER DAY.) 
 
=  CIVIL SERVICE COSTS: WAGES, SALARIES AND ALLOWANCES NEARLY 
DOUBLED THIS YEAR FROM THE ORIGINAL 2000 BUDGET AMOUNT OF ZIM 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ4903 
 
PAGE 01        HARARE  06566  04 OF 04  221630Z 
ACTION AF-00 
 
INFO  LOG-00   NP-00    AID-00   CEA-01   CIAE-00  CTME-00  INL-00 
      DODE-00  DOTE-00  SRPP-00  DS-00    EB-00    EXIM-01  E-00 
      FAAE-00  VC-00    FRB-00   H-01     TEDE-00  INR-00   ITC-01 
      L-00     VCE-00   AC-01    NSAE-00  OMB-01   OPIC-01  PA-00 
      PM-00    PRS-00   ACE-00   P-00     SP-00    SSO-00   STR-00 
      USIE-00  FMP-00   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00 
      SAS-00     /009W 
                  ------------------A2C864  221630Z /38 
P 221628Z NOV 00 
FM AMEMBASSY HARARE 
TO SECSTATE WASHDC PRIORITY 7687 
INFO DEPT OF TREASURY WASHDC 
SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
USDOC WASHDC 
NSC WASHDC 
 
C O N F I D E N T I A L SECTION 04 OF 04 HARARE 006566 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EB/IFD/ODF, EB/TPP/ODC, 
TREASURY FOR ED BARBER AND BARAK HOFFMAN 
DOC FOR 4510 HENDERSON 
NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH 
STATE PASS USTR FOR ROSA WHITTAKER 
 
E.O. 12958: DECL: 11/22/08 
TAGS: EFIN ECON PGOV BEXP ZI
SUBJECT: ZIMBABWE'S 2001 BUDGET; A REALISTIC, AND TOO 
                       CONFIDENTIAL 
 
PAGE 02        HARARE  06566  04 OF 04  221630Z 
OPTIMISTIC, EFFORT 
 
$27.6 BILLION TO ABOUT ZIM $54 BILLION, AFTER PRESIDENT 
MUGABE IN JANUARY UNILATERALLY GRANTED RAISES AVERAGING 
NEARLY 90 PERCENT TO THE ENTIRE CIVIL SERVICE.  (THE 2000 
WAGE BILL IS ABOUT U.S. $1 BILLION AT CURRENT EXCHANGE RATES, 
OR A PER EMPLOYEE AVERAGE OF U.S. $6,200.)  MINISTER MAKONI'S 
PLEDGE TO KEEP THE CIVIL SERVICE WAGE BILL TO ABOUT 12 
PERCENT OF GDP IN 2001 (V.S. 16.7 PERCENT THIS YEAR) MEANS 
THAT THE 2001 WAGE TOTAL WILL BE ABOUT ZIM $65 BILLION.  THIS 
IS AN INCREASE IN NOMINAL TERMS OF ONLY ABOUT 18 PERCENT, AND 
IT IS HIGHLY DOUBTFUL THAT ZIMBABWE'S 161,000 CIVIL SERVANTS, 
MANY OF WHOM ARE NEARLY ALL LOYAL RULING PARTY SUPPORTERS, 
WILL ACCEPT SUCH A MEAGER SALARY INCREASE IN TIMES OF HIGH 
INFLATION. 
 
=  CAPITAL SPENDING: CAPITAL EXPENDITURE HAS AGAIN DECLINED 
AS A PERCENTAGE OF GOVERNMENT EXPENDITURE TO ONLY 4.6 PERCENT 
OF THE TOTAL (IN 1999 IT WAS 12 PERCENT, IN 2000 - 8 
PERCENT).  THE AMOUNT IS ZIM $10 BILLION, VERSUS THE 
REQUIREMENT, AT LEAST ACCORDING TO THE FINANCE MINISTER, OF 
$75 BILLION.  THE ZIM $10 BILLION IS ALLOCATED AS FOLLOWS: 
 
- $1.3 BILLION FOR LAND RESETTLEMENT PROGRAM (V.S. $200 
MILLION IN THE 2000 BUDGET) 
- $1 BILLION IN A REVOLVING CREDIT FUND FOR SMALL AND MEDIUM 
INDIGENOUS BUSINESSES 
- $500 MILLION TO REPAIR CYCLONE ELINE DAMAGE 
- $900 MILLION FOR ROADS UPKEEP 
- $500 MILLION PROVISION TO MEET CALLED-UP GOZ GUARANTEES OF 
PARASTATALS 
                       CONFIDENTIAL 
 
PAGE 03        HARARE  06566  04 OF 04  221630Z 
 
------- 
COMMENT 
------- 
 
¶12. (C) OVERALL, THIS BUDGET IS PROBABLY THE MOST HONEST AND 
THOUGHTFUL THAT HAS BEEN TABLED IN ZIMBABWE'S 20 YEARS OF 
INDEPENDENCE.  A LARGE NUMBER OF CONSTITUENCIES WERE 
CONSULTED IN ITS FORMULATION, AND IT ALSO LOOKED CAREFULLY 
BACK ON PREVIOUS BUDGETS, RESURRECTING IDEAS CONSIDERED 
WORTHWHILE.  FOR EXAMPLE, THE CASH BUDGETING SYSTEM WAS FIRST 
PROPOSED IN THE 1994 BUDGET BY THEN FINANCE MINISTER 
CHAMBATI.  IT COURAGEOUSLY OUTLINES THE PRINCIPAL CAUSES, AND 
SOME OF THE HARSH CONSEQUENCES, OF THE CURRENT ECONOMIC 
CRISIS.  ITS ACTION INITIATIVES ARE ALL GOOD.  HOWEVER, THE 
BUDGET IS ALSO A COMPROMISE, ON BOTH THE POLITICAL AND 
ECONOMIC FRONTS.  IT CONTAINS A CONSIDERABLE DOSE OF HOPE 
OVER EXPERIENCE, IN BOTH ITS REVENUE PROJECTIONS AND IN ITS 
BLITHE ASSUMPTION THAT FISCAL DISCIPLINE WILL BECOME 
INSTITUTIONALIZED.  THE LATTER ASSUMPTION IS A KEY ONE 
DESERVING MORE SKEPTICAL ATTENTION.  JADED SENIOR CIVIL 
SERVANTS TOLD THE ECONOFF THAT WHAT HAS NOT OCCURRED IN 20 
YEARS (GOZ FISCAL DISCIPLINE), WILL NOT LIKELY OCCUR IN YEAR 
¶21.  (WE SUSPECT A SUPPLEMENTAL BUDGET REQUEST WILL COME 
FORWARD SOMETIME IN THE THIRD QUARTER NEXT YEAR.) 
 
¶13. (C) THIS IS ESPECIALLY SO GIVEN THE HARD ECONOMIC TIMES, 
ONGOING POLITICAL GAMESMANSHIP AIMED AT WINNING VOTER'S 
ALLEGIANCE, AND NO EVIDENCE AS YET THAT ZIMBABWE'S HARD TIMES 
HAVE BOTTOMED OUT.  THE FINANCE MINISTER DOES NOT PREDICT 
TURNAROUND UNTIL THE THIRD OR FOURTH QUARTER OF 2001.  WE 
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PREDICT THAT THE NEXT SIX TO TWELVE MONTHS HERE WILL BE THE 
WORSE THAT ZIMBABWE, OR FOR THAT MATTER RHODESIA, HAS EVER 
EXPERIENCED.  THE HARD CURRENCY SHORTAGE WILL WORSEN, 
BUSINESS CLOSURES WILL ACCELERATE, WITH ATTENDANT JOB LOSSES 
AND SHORTAGES OF BOTH DOMESTIC AND IMPORTED GOODS.  IF THE 
TURNAROUND DOES OCCUR AS ENVISIONED BY THE FINANCE MINISTER, 
THEN IT WILL NOT BE UNTIL 2002 OR 2003 THAT ZIMBABWE WILL 
RETURN TO AN ECONOMIC STATE OF HEALTH LAST SEEN IN 1997.  IN 
OTHER WORDS, FIVE YEARS OF ECONOMIC GROWTH, AT THE VERY 
LEAST, HAVE BEEN WIPED OUT BY RECENT ACTIONS OF THE COUNTRY'S 
LEADERSHIP.  WE ARE KEEPING OUR FINGERS CROSSED THAT THIS 
HALF-DECADE BLACKOUT IS NOT EXTENDED FURTHER BY ANY MORE ILL- 
CONCEIVED MOVES AND CAMPAIGNS THAT SERVE THE POLITICAL 
EXPEDIENCY AND ENTRENCHMENT DESIRES OF THE FEW, AT THE 
EXPENSE OF THE PRESENT AND FUTURE WELL-BEING AND SURVIVAL OF 
THE MANY, REGARDLESS OF WHAT RACE THEY MAY BE.  WE HAVE, 
HOWEVER, NO EVIDENCE THAT ECONOMIC COMMON SENSE WILL PREVAIL 
OVER THE POLITICALLY EXPEDIENT "FAST-TRACKERS" NOW LEADING 
THIS ECONOMY INTO AN ABYSS.  END COMMENT. 
 
MCDONALD 
 
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