DEFLATIONARY pressures experienced in February will continue to affect the economy throughout the year due to an extending negative output gap, the Ministry of Finance has said.
In the state of the economy report for the month of February, the Ministry of Finance said recurrent expenditures at 96% of total expenditures continued to crowd out capital spending, with only 4% being disbursed for capital projects.
“With regards to prices, a deflation of -0,49% was recorded during the month, a development that is expected to persist in the outlook,” the report read. “Going forward, inflation is expected to remain subdued due to depressed aggregate demand, stable international oil and food prices as well as strengthening of the United States dollar against currencies of our major trading partners.”
Of the February 2014 recurrent expenditures, 58% went towards employment costs while 38% was for current transfers.
The report states that during the month of January exports increased by 10% to $278,2 million from $251,8 million in December 2013 and the minerals contributed the bulk of the exports.
Imports declined by 15% to $487,5 million from the $576,6 million recorded in December 2013.
“The decline in imports (especially raw materials) can be attributed to the low activity in the manufacturing sector. Foodstuffs, motor vehicles and fuel contributed the bulk of the imports in the month,” the Finance ministry said.
The trade gap for the month of January improved to $209,3 million from the $324,7 million realised in the month of December 2013.
Treasury also revealed that sales of consumer goods declined by 25% to 30% during the month, reflecting an intensification of the liquidity crisis in the economy.
The report showed that a total of 15 companies in the metals and engineering subsector closed shop in the month under review.
“The strengthening of the US dollar against currencies of our major trading partners also made imports much cheaper with some landing at below margin prices, exerting pressure on locally manufactured goods,” it said.