Govt spending fuels inflation

LIVINGSTONE MARUFU

The government is spending millions in the construction sector, winter wheat, census enumeration and war collaborators’ vetting amid fears these exercises are fueling inflation as beneficiaries seek a safe haven in a stable currency, Business Times can report.

The move comes at a time when the local currency has been depreciating against major currencies, especially the US dollar.

Multiple economists said the spending spree was pushing up the exchange rate as beneficiaries search for the elusive greenback on the black market.

This has made it difficult for the monetary authorities to stabilise the exchange rate as the recipients will be in the market to offload the ZWL$ in favour of foreign currency.

With the 2023 general election looming, the government has been accused of embarking on populist programmes such as command agriculture. They are also accusations that cash is being dished out to  the election campaigning teams across the country.

“The recent payment of over ZWL$600 000 per person to over 10 000 vetting supervisors of the war collaborators ahead of the elections next year could have pushed  the exchange rate in the parallel market. The Zimbabwe dollar is trading at ZWL$360 per US$1,” an economist told Business Times.

“More so, various census enumerators who are conducting the census will also receive high packages.”

Economist Gift Mugano said the exercise will give a  renewed pressure on the forex exchange market.

“The payment of census personnel and  war collaborators will push inflation pressures on the already  fragile market as we are now at a time when the  finance disbursement of 2022 is gaining momentum hence there is too much money in the market,” Mugano said.

“You should bear in mind that 34.2% of the budget is going to capital expenditure where you see a lot of energised spending around the roads.”

Mugano added: “This is good but short term financing backfires in terms of inflation point of view  and exchange rate spiral point of view as paid people will come back to the parallel market looking for the greenback.”

He said the country is also in the winter wheat production and that is also a huge expenditure on part of the government.

“We want food security but the model of financing that we are using as a country in agriculture and grain procurement should be transformed from a command approach to a market led approach where companies in the milling industry will be given the right environment to  venture into real contract farming and government should take a back seat,” Mugano said.

He said various companies are not given any incentive to finance agriculture as the government will be controlling the Grain Marketing Board to purchase on its terms.

Another economist Christopher Mugaga said the authorities should make fundamentals right to tame inflation and exchange rate.

“If fundamentals were aligned, the people would not make a beeline to offload the local currency at the parallel market. But I don’t  think  that figure can cause inflation  but may give pressure to the  government on the wage negotiation platform where other workers would say if a person could be given ZWL$600 000 per fortnight then they can earn above that monthly,” he said.

“Very soon we might see various labour unions in both the public and private sector pushing for that amount that was given to supervisors and this will push inflation upwards due to the wage bill. This will create an expectation crisis.”

Zimbabwe’s tight fiscal consolidation is put on acid  test as the government continues to up its expenditure as the 2023 elections season gears up.

The government subsidises various programmes and distributes inputs, foodstuffs for free, hence spending more than they generate, thereby putting pressure on its expenditure.

“The year 2022 is a campaign period and businesses are afraid of the spike in government expenditure, ” an executive said.