Finance minister says the country is struggling to pay civil servants whose salaries take up 96.8 percent of the budget.
Zimbabwe’s government has said it will fire up to 25,000 civil servants in an attempt to rein in government spending, while those keeping their jobs won’t receive end of year bonuses for the next two years.
Patrick Chinamasa, the finance minister, said on Friday that the government was struggling to pay civil servants, with their salaries reportedly eating up 96.8 percent of the annual budget.
"The economy is facing strong headwinds, with major challenges being experienced than what the 2016 national budget anticipated," Chinamasa was quoted by the AFP news agency as saying.
He said the government also ran up a $623m budget deficit in the first six months of 2016 and warned it could widen to $1bn by the end of the year.
"The outlook points to a situation where projected revenues fall short of meeting employment costs, leaving no room for expenditure on operations and maintenance as well as capital projects."
"The last time the Finance Minister tried to impose such drastic measures, President Robert Mugabe came out to reassure Zimbabweans that no one would be fired and that the money would come from somewhere," Al Jazeera’s Haru Mutasa, reporting from the capital Harare, said.
"But economists are saying Mugabe is serious under pressure to fix the ailing economy."
Anger over high unemployment and cash shortages has led to violent protests in the past month.
Despite Mugabe’s record of deploying the security forces to crush public dissent, a one-day strike in July, called by trade unions and Christian pastor Evan Mawarire, shut down offices, schools and some government departments.
Mugabe has repeatedly vowed to fight back, with threats of cracking down on protest leaders.
Police last week banned protests in the capital for two weeks as a coalition of opposition parties planned street marches to press for reforms ahead of the next general election in 2018.
Mugabe, 92, has held power since the country’s independence from Britain in 1980. He is increasingly under pressure from opponents, as well as his war veterans allies, who last month called him as a dictator and called on him to step down.