July 30, 2015 / 5:05 PM / 4 years ago

UPDATE 2-Zimbabwe halves growth forecast, to cut government wage bill

* Economic growth revised to 1.5 pct from 3.2 pct

* Govt revenue seen falling, aiming to halve wage bill

* Biggest earner, agricultural output, hit by drought

* Announces measures to help miners, manufacturers (Recasts with GDP growth)

By MacDonald Dzirutwe

HARARE, July 30 (Reuters) - Zimbabwe’s government halved its economic growth forecast to 1.5 percent this year from 3.2 percent, blaming a drought that has hit agriculture, and announced plans to halve its wage bill as government revenues are squeezed.

Finance Minister Patrick Chinamasa said in a half-year budget statement that contributions from mining, tourism, construction, manufacturing and finance would be offset by the slump in agriculture, Zimbabwe’s biggest contributor to GDP.

The drought has cut output from agriculture by 8.2 percent while weak mineral prices have hit platinum output.

“Deceleration in overall economic growth signifies the contribution of agriculture, and the need for drought-proofing the economy given adverse effects of climate changes,” he told parliament.

The southern African country’s economy is suffering from power shortages and lack of foreign investment, while companies are cutting jobs as they struggle to pay salaries.

Staff costs are hitting the public sector too. Chinamasa said 83 percent of government revenue was being used to pay civil servants’ wages.

“Cabinet has realised that this is clearly unsustainable and has started a process to gradually bring down the share of the wage bill in the budget from over 80 percent to under 40 percent,” he said.

The World Bank says the economy will post 1 percent growth but economic analysts are less optimistic, with some predicting Zimbabwe could tip into recession later this year.

Highlighting the effects of the slowdown, Chinamasa cut revenue estimates to $3.6 billion from $3.99 billion this year.

The government would have to borrow $400 million from domestic and foreign sources to cover for the budget deficit, he said. The state had initially planned to borrow $125 million.

Zimbabwe, which holds the second largest reserves of platinum, recorded a 6.4 percent decline in production to 5.9 tonnes during the first half of this year, Chinamasa said.

He said gold output rose 29 percent to 6.8 tonnes thanks to higher deliveries by small-scale mines. Despite weak global metal prices, mining was expected to grow by 3.5 percent this year, boosted by higher nickel, gold and coal output.

To boost mining and manufacturing, Chinamasa said he would reduce electricity tariffs to the sectors. He also cut royalties levied on small-scale gold producers to 1 percent from 3 percent from September after small-scale miners tripled production.

Mining contributes around 17 percent to gross domestic product and 53 percent of export earnings.

To make up the shortfall in maize caused by the drought, private firms imported 101,716 tonnes of maize, Chinamasa said, adding that the government would import 80,000 tonnes. Zimbabwe plans to import 700,000 tonnes of maize in total this year. (Editing by James Macharia and Alison Williams)

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