Govt spending raises risk of widening fiscal deficit
BUSINESS REPORTER
Listed private equity company, BridgeFort Capital Limited says government’s excessive spending increases the risk of a large fiscal deficit.
Company secretary, Sithulisiwe Ncube, expects the government to spend more towards elections, scheduled for between July and August this year, a move expected to exacerbate the situation.
In a statement accompanying the company’s financial results for the 2022 results, Ncube said the government was battling to maintain fiscal discipline.
“Government spending on commendable yet unaffordable national projects, unsustainable civil servant wage demands as well as expected election-related spending increases the risk of a large fiscal deficit in 2023,” Ncube said.
She expected the ZWL devaluation to persist and probably accelerate leading to an increased market preference for US$-based transactions.
“Exchange rate disparities between the official and parallel markets persist making formal businesses less competitive. With the increased use of US$ in the market and the ongoing exchange rate distortions, sales continue to shift from the formal to the informal market which will erode the government’s real value of tax revenue,” Ncube said.
In its financial results for the year to December 31,2023 reported a loss of ZWL$1.44bn from a profit of ZWL$1.42bn.
Ncube said the challenging macroeconomic environment combined with frequent policy changes, severely constrained business operations.
“The total comprehensive loss for the year amounted to ZWL$1.44bn, almost entirely made up of fair value losses due to the reduction in the real values of the class A and B shares on the Zimbabwe Stock Exchange,” Ncube said.
BridgeFort said the current low electricity generation, a cause for national concern, drives business operating costs, if they can operate at all, and negatively affects consumer spending as more money is spent on alternative energy sources.
The performance of the local economy in 2023 is likely to be negatively affected by the power situation unless this is resolved very soon.
BridgeFort said though the foreign currency retention benefit of being listed on the Victoria Falls Stock Exchange has been removed, there are still compelling reasons to migrate listings from the ZSE to the VFEX.
These include trading costs, US$ reporting, and trading currency, and the substantial increase in ZSE listing fees for 2023., according to Ncube.
The trend in migrations is expected to continue although this may make the remaining companies listed on the ZSE more attractive due to the available ZWL chasing fewer listed counters.
