The Zimbabwe economy is projected to grow by 5,5 percent in 2022, but growth could be derailed by the Covid-19 pandemic and exchange rate volatility that may contribute to spiralling inflation, Finance and Economic Development Minister, Professor Mthuli Ncube, told Parliament yesterday.
Presenting his 2022 National Budget Statement, Mthuli said the projected growth would be underpinned by higher output in mining, manufacturing, agriculture, construction as well as the accommodation and food services (tourism) sector.
For agriculture, the underlying assumptions for the projected 5,1 percent growth is underpinned by normal to above normal rainfall pattern while for mining the assumption is favourable international mineral prices. The mining sector is expected to grow by 8 percent in line with the US$12 billion mining industry milestone by 2023.
While growth is expected to be underpinned by subdued Covid-19 pandemic and a relatively stable exchange rate and declining inflation, Mthuli is alive to risks stemming from “uncertainty in the future path of the pandemic and exchange rate volatility that may contribute to high inflation”.
Inflation, which Mthuli now projects to end the year between 52 percent and 58 percent, up from the revised target of between 25 percent and 35 percent, remains problematic in the economy.
Unless there are significant price increases, the new target is set to be missed as the November inflation has already breached the year-end target.
According to figures released by ZimStat yesterday, November inflation paced to 58,40 percent, which is even above the new targets by Mthuli.
High inflation erodes earnings for the Government, business and households and in the process stalls economic growth.
A negative shock to the projected growth will result in reduced revenue collection, increased expenditures and consequently widening of the budget deficit, according to the Treasury chief.
Given that inflation is still high, acceleration above current levels may generate adverse fiscal outcomes such as a shock drop in growth projections to 1,6 percent. Total revenue as a percentage of GDP will fall from a 16,8 percent projection to 15,3 percent. Total revenue collections are projected at $850,8 billion.
Total expenditure as a percentage of GDP will shoot to 20 percent from 18,3 percent.
Expenditures in 2022 are projected at $927,6 billion, with a targeted deficit of $76,5 billion (1,5 percent of GDP) with recurrent spending constituting 13,4 percent
of GDP while Capital Programmes will take up 5 percent of GDP.
To complement anticipated revenue collections in 2022, Government seeks to borrow resources amounting to $76,5 billion from the domestic market and additional drawdown from the SDRs resources.
Mthuli also spoke of risks stemming from wage bill pressures which if accommodated could result in underspending on capital projects and other social programmes, thereby undermining budget execution and outcomes including delivery of critical public services to citizens.
There is huge expectation to review public wages to the October 2018 levels, which will imply a risk of $114,8 billion to the budget (2 percent of GDP), according to Mthuli.
The fiscal balance as a percentage of GDP could still increase to a negative 4,7 percent from the projected 1,5 percent if inflation spirals.
To mitigate the inflation exchange rate risk, both fiscal and monetary policy measures will prioritise stability of exchange rate and inflation, said Mthuli.
“Such measures include implementing a credible reserve monetary targeting framework, enhancing efficiency and transparency of the foreign exchange auction market, and improving policy coordination between Treasury and RBZ.”
Government also plans to strengthen collaboration with business, labour and other stakeholders in order to cultivate business and consumer confidence as well as provide greater policy certainty that is critical in promoting inclusive growth and stability.
Furthermore, in case of some risk materialising, Minister Ncube said adherence to the cash budgeting principle and the approved budget, among other measures, will contain the fiscal deficit within the targeted levels including adopting non-inflationary financing of the deficit.
Mthuli also remains wary of State-Owned Enterprise (SOEs) that he fears might underperform or face viability challenges.
“State-Owned Enterprises (SOEs) represent significant fiscal risks, with some in financial distress, mounting losses, negative equity and failing infrastructure. Long-term viability challenges are evident through deteriorating financial ratios of profitability, liquidity and solvency.
“Given the risks that may arise from the SOEs, Government has embarked on reforms aimed at improving their operational efficiencies. To date some have been departmentalised in Ministries, some are in different stages of being privatised and some are being commercialised,” reads part of the 2022 National Budget Statement.
Other risks relate to extreme weather conditions, retreat in international commodity prices and higher than anticipated international oil prices, according to Mthuli.