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Experts decry new budget

Business
Gift Mugano

Africa Economic Development Strategies executive director Gift Mugano has described the 2023 National Budget as “a total disaster”, and is seen keeping high levels of inflation.

The annual inflation rate was 268,8% last month, from 280,4% in September, and has remained in triple digits for the past few months.

“The 2023 budget is a total disaster! Just looking at numbers, a $4,5 trillion budget up from the original 2022 budget and supplementary budget by 385% and 137%, respectively. These figures tell us that in 2023, the inflation spiral will continue,” Mugano said in a post-budget analysis.

“Citizens may need to know that the budget has been the main driver of inflation in Zimbabwe. In 2020, government presented a budget figure of $63 billion, up from $8,1 billion in 2019, but (government) went on to overspend by $100,2bn in 2020. Inflation in the same year shot to 837%.”

He said in 2021, annual inflation receded to around 57% by December but shot up to 285% in 2022 on the back of the $1,9 trillion budget.

“Building on this experience, it is clear that there is causal relationship between the size of the budget and inflation developments. A cash budget of $1,1 trillion for capital expenditure mainly for roads, dams and other infrastructure projects poses a serious threat to the economy mainly through exchange rate spikes and inflation,” Mugano said.

Heading into the budget, central bank Monetary Policy Committee member, Persistence Gwanyanya, warned that the budget had to be centred around judicious management of financial resources to support the macroeconomic stability witnessed in the market.

The stability was due to tighter fiscal and monetary policies. These are reviewing prices from government suppliers, the introduction of gold coins, taking local bank balances to service the huge forex auction backlog, high-interest rates, and a 40% capital gains tax on stocks sold before 270 days.

“This will make the work of the Reserve Bank of Zimbabwe to maintain currency stability easier. We need to continue living within our means and remain growth-focused rather than consumption-focused. As we implement the ongoing reforms, we should not forget those on the lower rungs of the economic ladder,” Gwanyanya said.

“Overall, Treasury should concentrate more on sound policies that attract investment as opposed to the resource allocation function.”

Former Finance minister and the current Member of Parliament for Harare East, Tendai Biti, said the country was in a “self-induced recession” created by high borrowing costs, relentless inflation, and a squeeze on government payments to contractors.

“An honest budget ought to have been presented in US$. After-all more than half of government taxes are now being collected in US dollars. This would then have allowed civil servants to be paid in US dollars. This would also have required government to simply dollarise,” he said.

“As we have argued before, the exchange control mess, right at the centre of Zimbabwe macroeconomic instability must be resolved by dollarisation, floating of the Zimdollar, scrapping the forex auction and the gold coin.

“Sadly, this did not happen. The mess of multiple exchange rates will, therefore, continue with consequent pricing distortions. The raising of VAT [value-added tax] to 15% is an attack on working people and reflects the ideological vacuousness of the regime. It is elementary economics that in a recession, taxes must be lowered to stimulate aggregate demand.”

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