Maize subsidy will cost Zim dearly, create more debt

ZIMBABWE’S budget deficit will increase by nearly $120 million (R1.6 billion) this year, due to a maize subsidy, calculations show, in a scheme critics of President Robert Mugabe say will be open to abuse and saddle a troubled economy with more debt.

Facing an election in 2018, Mugabe says the subsidy will make Zimbabwe self-sufficient in the grain and help struggling farmers.

Mugabe’s government announced the scheme last year as part of a “Command Agriculture” drive, saying it would pay farmers $390 a ton for maize this harvest to encourage farmers to plant. Nearly 70 percent of Zimbabwe’s population is rural-based and survives on agriculture.

Scheme

The government has not said what it will do with the maize it has bought – essentially who it will sell it to and for how much. That information is needed to work out how much the scheme will cost the government.

However, the Grain Millers Association of Zimbabwe, a grouping of the 100 biggest private millers, has agreed to buy 800 000 tons of maize from the state for $194m this season, or $242.50 a ton, its chairperson, Tafadzwa Musarara, said.

At this price, the government would lose $147.50 for every ton it buys from farmers and sells to these private millers, totalling $118m, according to calculations. Finance Minister Patrick Chinamasa did not respond to requests for comment.

The final cost could be much higher if the government buys more grain, with the nation’d forecast to grow 2.1 million tons of maize this year, financial analysts said.

Zimbabwe is already in arrears for $7bn of international debt – around 50 percent of gross domestic product – and its domestic debt burden is growing rapidly as Mugabe’s administration runs ever larger budget deficits.

Domestic debt now stands at $4bn after a 2016 deficit of $1.4bn – from an initial forecast of just $150m. This year’s deficit forecast is $400m. The budget does not include any “Command Agriculture” spending. Chinamasa issued a statement in the state-owned Herald newspaper on June 28 defending the maize subsidies:

“The command agriculture programme was designed to (mobilise) sustainable and affordable funding for our agriculture so as to ensure food security, eliminate imports of food, to increase exports from this sector and reduce poverty.”

Despite government assertions that the subsidies will help farmers and feed the nation, opposition leader Morgan Tsvangirai said the scheme is typical of the practices that have taken root during Mugabe’s 37 years in power. He said it would benefit ruling Zanu-PF party members who acquired land after the violent eviction of 4 000 white commercial farmers from 2000 onwards.

“Who is benefiting? The same Zanu-PF elites who took the land,” Tsvangirai said. “The Treasury has to fork that out and it’s not sustainable. It’s a fiscal nightmare.”

Chinamasa said in his statement that concerns about mismanagement had been dealt with and all beneficiaries of the agriculture programme would be held in a database.

Mugabe, 93, and who has been in power since independence from Britain in 1980, has personally defended the maize subsidy, but the World Bank says paying above the market rate is not the answer. “Government intervention is both expensive and inefficient, especially the use of price support, as floor prices are set far higher than import-competing prices,” it said in June.

An International Monetary Fund source, who declined to be named, said the subsidy would be difficult to monitor, funds could be funnelled to political interests and crops could be smuggled across borders. – Reuters

Zimbabwe is already in arrears for $7bn of international debt – around 50% of gross domestic product.