HARARE, July 25 (Reuters) – Zimbabwe’s 2024 budget deficit is forecast to be 1.3% of gross domestic product, Finance Minister Mthuli Ncube said on Thursday,but warned that concerns remained over the impact of a drought on finances.

The finance ministry projected 2024 growth at 2% earlier this month, down from 3.5% forecast in November, as southern Africa suffers its worst drought in decades.

In his midterm budget review, Ncube told lawmakers that the agriculture sector was now projected to contract by 21.2%, against a contraction of 4.9% in November, due to the drought.

Ncube added that spending priorities for the remainder of the year could change as the government takes stock of the impact of the drought on food security and water.

In April, the southern African nation introduced its new gold-backed currency, Zimbabwe Gold (ZiG), its sixth attempt at a domestic currency in 15 years.

“Since the introduction of the ZiG currency, the economy is experiencing relatively stable prices and exchange rate,” Ncube said, adding that inflation had remained stable in the two months since its introduction.

Zimbabweans however have been slow to adopt the new currency, opting instead to continue trading in foreign currency, mainly US dollars.

Ncube introduced revised tax proposals which he says will encourage greater use of the currency, including changes to corporate taxes and making some domestic taxes only payable in local currency.

(Reporting by Nyasha Chingono in Harare and Kopano Gumbi in Johannesburg, additional reporting by Tannur Anders and Bhargav Acharya, writing by Kopano Gumbi, editing by Mark Heinrich and Bernadette Baum)