HARARE (Reuters) - Zimbabwe's economy has stagnated this year while its budget deficit has exploded, the government said on Thursday, adding to President Robert Mugabe's problems as he faces unprecedented protests over cash shortages and falling living standards.
In his annual budget address, Finance Minister Patrick Chinamasa halved his 2016 economic growth estimate to 0.6 percent and said the budget deficit would widen to $1.18 billion - eight times his November 2015 forecast of $150 million.
Chinamasa said the country was facing "a number of headwinds", including a lack of investment flows and remittances from Zimbabweans overseas, both of which fell this year.
Mugabe, 92, has been in power since independence from Britain in 1980. But he is under pressure over an 80 percent-plus unemployment rate and corruption and has personally nixed attempts to cut the bloated civil service.
With banks running out of money, he has introduced an unpopular "bond note" currency that is meant to ease the liquidity crunch but which many Zimbabweans fear will cause a return to hyperinflation.
Chinamasa blamed the swollen deficit on the need for grain imports because of a devastating drought, payment of 2015 salary arrears, debt servicing and bonus payments to public workers that were not in the original spending plans.
For next year, he forecast moderate growth of 1.7 percent due to improved commodity exports, as well as a smaller deficit.
However, few Zimbabweans will have faith in the figures coming from an administration that since 2013 has been forced to cut all its growth targets.
This year alone Chinamasa has revised his growth figures three times.
"The fundamental challenge remains that of under-production, entirely across all sectors of the economy," he said, adding that it was imperative that Harare - seen as a pariah in global financial circles - patched up ties with the outside world.
Zimbabwe cleared $107.9 million in arrears to the International Monetary Fund in October. Chinamasa said he planned to clear $1.8 billion in arrears to the African Development Bank, World Bank and European Investment Bank in early 2017. It was not clear how this will be done.
Chinamasa said the public sector wage bill would take 73 percent of next year's budget, down from 91 percent so far this year. He also proposed a freeze on state wages, potentially deepening public anger towards the administration.
Critics accuse Mugabe of wrecking one of Africa's most promising economies through policies such as violent seizures of white-owned commercial farms and disastrous money printing.
Reporting Macdonald Dzirutwe; Editing by Ed Cropley and Hugh Lawson