ECONOMISTS have raised concerns over the continued increase of the national budget over the past years as it is exerting increased inflationary pressures on the economy. The concerns come ahead of today’s 2024 national budget presentation.
This comes as total expenditure for 2022 was initially set at ZWL$968,3 billion but was changed after the currency lost nearly 530% of its value, against the greenback, to ZWL$1,9 trillion, entailing additional expenditure of ZWL$929 billion.
Similarly, this year’s expenditure was originally ZWL$4,5 trillion which Treasury later revealed would rise to ZWL$22,62 trillion, an additional spending of ZWL$18,12 trillion as the Zimdollar has depreciated over 700% against the greenback.
Comparing the two fiscal years, the 2023 expenditure rose 1 090% from 2022.
In 2022, revenue projections also changed to ZWL$1,7 trillion against an initial projection of ZWL$850,77 billion while this year Treasury is expecting to have collected ZWL$21,18 trillion against an initial projection of ZWL$3,9 trillion.
However, pre-budget meetings have revealed that the 2024 national budget already is underfunded to the tune of ZWL$62,6 trillion as total bids were ZWL$110 trillion with Treasury only approving ZWL$47,4 trillion. Revenue for 2024 is projected at ZWL$44,1 trillion.
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In an interview with NewsDay Business, economist, Gift Mugano, said the more the Finance ministry increased the national budget, the more the liquidity on the local market which negatively affects the economy.
“The challenge that you continue to face in the case of the budget is that our budget has increased in an astronomical way over the years to the extent that in the past 5 years, the budget increased by 56 000% from the 2018 to 2023 budget,” he said.
“So, it means the Finance ministry is pumping excessive liquidity into the market. Unfortunately, this trend is going to continue because I have noted that the budget for 2024, based on the presentation which has been done by the Finance ministry in Parliament is that it is anticipating spending ZWL$47 trillion.”
“But, if we take that ZWL$47 trillion against our current budget of ZWL$4,5 trillion, that is more than a thousand percent within a year.”
Mugano said the local currency would continue to depreciate since the economy was dollarising.
“So, already you see where the problem is because it means the amount of liquidity that is going to be entered in the market will be increasing by more than a thousand percent,” the economist said.
“So, that will leave our Zimdollar in the dustbin because what it means is that we are going to continue to see rates going to the roof to a point where I believe that early next year there won’t be any space in the market for the same dollar.”
He said looking at the banking sector alone, over 94% of the loans were in US dollars.
“Finance minister, even himself, when they were presenting the budget, indicated that they received US$7 billion in terms of taxes and more than what was received during the unity government. So, what it tells you is that we are now a dollarised economy.”
Mugano also raised concern over contractors and service providers trading the local currency disbursed by the Finance ministry on the parallel market destabilising the economy.
“It has always been the case that whenever the budget is presented, it destabilises the Zimdollar because of the excess liquidity. When money is being paid out, the contractors, service providers, to the government, always run to the parallel market to change that money,” he added.
In another interview, economist Prosper Chitambara said the increase in the 2024 budget would have an impact on the economy as it would increase inflationary pressures.
“So, this year’s budget, the initial budget was set at ZWL$4,5 trillion. But of course, we know that figure has since increased quite drastically and probably will end at around maybe ZWL$25 trillion or ZWL$27 trillion, thereabouts,” he said.
“So, next year’s budget will probably be set at about ZWL$40 trillion. So, you can see that there is a huge increase, a significant increase in the budget between this year and of course the projected budget for next year. That, in itself, could obviously trigger inflationary pressures which could obviously destabilise the Zimdollar.”
Chitambara urged the government to stick to the prescribed budget and ensure fiscal and monetary discipline to avoid further increasing the budget through supplementary budget.
“But we are hoping that the government is going to continue to ensure fiscal discipline and also of course monetary discipline. In other words, we need to stick to the budget. So, for this year, like I am saying, the initial budget was not sufficient,” he added.
“So, it means the minister will have to seek condonation for going beyond the initial envelope, but given that he didn’t actually announce a supplementary budget when he presented the mid-term fiscal review, we need to stick to that.”