Captains of industry have warned the impending 2023 elections and the summer cropping season will force the government to abandon its tight policy stance to dole out largesse at the expense of economic stability.
The country goes for polls next year with business leaders warning the season will see policy shift to sponsor campaigns and the agricultural season, a key factor in canvassing for votes mainly in rural and resettled areas.
In August this year, the central bank took a deliberate tight monetary policy stance, mopping excess liquidity in the market as part of efforts to contain volatile exchange rates and ring annual inflation.
In its submission to the 2023 National Budget, the Confederation of Zimbabwe Industries (CZI) said the government expenditure is likely to go up as the country draws to the election period.
“The current agriculture season, for example, will require the government to support farmers through the various schemes in existence,” the CZI said.
“There is potential for the creation of excess liquidity which can feed the growth of money supply if payments are not carefully calibrated. The ability to crowd in the private sector as well as the general ability to fund agriculture in a non-inflationary manner will determine the inflation trajectory in the coming months,” CZI said.
“The upcoming 2023 harmonised elections also have the potential to be a source of money supply growth unless elections are funded from the budget and payments are also carefully calibrated so as not to upset the market.”
Businesses said the responsiveness of the parallel market to a tightening of liquidity also shows that the parallel market behaviour is largely responsive to liquidity conditions in the economy, as reflected by the growth in the money supply.
According to CZI, the threat to stability is the liquidity pressures that would be expected going forward.
Business leaders said the taming of inflation as well as the sustenance of stability over the past two months has generally shown that the greatest threat to stability is excess liquidity.
Economist Gift Mugano said there is a likelihood of the government turning on the printing press as it will do within its means to retain power.
“We are getting into an election period, naturally the government tends to become weaker as far as these principles for value for money are concerned.
“For how long should they keep the liquidity tight as the people who have the tenders for everything in the country are the main sponsors of the campaigns hence they will be given time to make money to support the ruling party’s events,” he said.
Mugano’s remarks come as the Treasury has tightened the screws on its suppliers amid revelations that contractors were fleecing off ministries, departments and agencies by inflating prices.
Finance minister Mthuli Ncube recently blacklisted 19 suppliers for fuelling the forex parallel market.
Despite claims by businesses and economists that the government will falter, the Reserve Bank of Zimbabwe is adamant that the government will not overspend.
“We will continue with the tight monetary policy stance no matter what circumstances to achieve stability and ensure that the value of our local currency is maintained,” central bank government John Mangudya said.
Zimbabwe was experiencing the sharpest and most prolonged resurgence of inflation since July 2020 when it peaked at 837%.
Zimbabwe’s annual consumer price inflation eased for the second straight month to 268.8% in October of 2022, from 280.4% in the prior month following tight monetary measures implemented by the government and monetary authorities.
Experts said some of the factors that have played a critical role in stabilising the parallel market rate, which was causing distortions and instability in the economy, include the introduction of gold coins, increased due diligence on payment of government suppliers, hiking of interest rates and a slowdown in the money supply.
The persistent decline in month-on-month inflation since July 2022, is now starting to trickle down to annual inflation as for the second month in a row, annual inflation has declined, hitting 268.8% in October from 280.4% in September.
Although annual inflation is still relatively very high, business sees the decline as a welcome development and if the authorities maintain the tight liquidity conditions, annual inflation will keep dropping.