‘All out local agric funding could fuel inflation’

September 23, 2021

LIVINGSTONE MARUFU

 

Government should reconsider its plan to support the agriculture sector from local funding, a move which could trigger high inflation next year due to overspending by the Treasury, economists warned this week.

They said the government should look for cheap offshore financing.

Zimbabwe’s annual inflation rate for the month of August declined to 50.24% from 56.37% in July.

“As we are preparing and celebrating the new agriculture season which is just around the corner we should take in mind that local funding could lead to the overspending of the fiscus which might trigger serious inflation in 2022.

“The government should do the balancing act of pushing local funding while at the same time try not to overspend by issuing treasury bills or bonds to fund agriculture,” economist Tony Hawkins said.

In April this year the International Monetary Fund (IMF) warned Zimbabwe over the issuance of the bonds which it fears could trigger inflation.

With the country grappling with lack of the credit lines in the economy over the past two decades due to its failure to repay debts and its frosty relationship with the Western countries, commercial paper issuance was the way to go to fund its programmes.

Zimbabwe is set to borrow ZWL$14.45bn from the domestic market between July and September to finance government programmes through the issuance of Treasury Bills and bonds.

Another economist, who preferred anonymity, told this publication that the country was in a catch-22 situation as it wanted to cut the import bill and at the same time keep an eye on inflation.

“We are having a stellar season after yet another good season and we should capitalise on that as it is rare these days to have two good consecutive seasons.

“But as we are enjoying a season of seasons let us remember that we may trigger serious inflationary pressures by the overspending on agriculture. We should not solve another problem by creating another problem as gains of a good season are nothing compared to effects of inflationary pressures,” the economist said.

Buoyed by a stellar 2020/2021 summer cropping season, the government projected the economy to grow by 7.4% but the monetary fund believes with Covid-19 implications and limited financing the economy will slow down the anticipated growth.

Economist Persistence Gwanyanya said the good summer cropping season will help to turn around the economy and Zimbabwe will save over US$500m on foodstuffs and other agro-based raw materials.

“This will by any means override the dangers of inflation as external funding could also lead to unsustainable debt levels,” Gwanyanya said.

The government has set aside US$60m to fund tobacco after a serious push to reduce external funding by the tobacco merchants.

By this, the country wants to manage its affairs internally by employing the “Italia fara da se” tactic where the country will use its resources to develop.

But the IMF said an important reason why the monetary fund is more conservative in the country’s growth projections is that Zimbabwe continues to have very limited access to external concessional support.

The government said it will remain committed to maintaining a high level of fiscal discipline that does not push inflation.

 

 

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