Mthuli Ncube needs a balancing act

Some good news came this week: the once number one enemy inflation could have been tamed after slowing to 56.37% in July from 106.64% in June, the first time it had reached double digit levels in two years.

During the same time last year, annual inflation was 837.53%. The slowdown in inflation is the culmination of efforts by fiscal and monetary authorities to stabilise the economy.

Treasury has stopped borrowing from the central bank while it has reduced its appetite for borrowing from the domestic market.

The issuance of government securities has been systematic with the Public Debt Management Office recently releasing a calendar on when the government would borrow from the domestic market and the amount to be raised.

The central bank is working on a disinflationary programme and has reduced the reserve money growth target to 20% per quarter from 25% as it tightens monetary policy targeting an annual inflation of below 25% by December.

In his 2021 National Budget, Finance minister Mthuli Ncube said the budget was embracing and consolidating the various fiscal measures on containing expenditures combined with monetary management through reserve money targeting, as well as disciplinary measures in the financial sector so as to contain inflation.

The slowdown in inflation comes as the economy is battling to contain the effects of the Covid-19 pandemic which has exposed the fragile healthcare sector and absence of safety nets.

According to a recent World Bank report, the Covid-19 pandemic added 1.3m Zimbabweans to the extreme poor category.

The number of the extreme poor rose about half to 7.9m in 2020 on job and income losses in urban areas, and a deterioration of social services in rural areas.

The troubled local industry has been further hamstrung by the recent riots in South Africa. Zimbabwe heavily relies on imports from South Africa, which is its biggest trading partner and accounts for close to 50% imports and 65% exports.This means the disruptions that rocked South Africa would have some ripple effects on Zimbabwe as the country solely depends on its neighbour. It is understood that South African companies will take eight to 10 weeks to recover and as of now they are restocking, leaving less room for exporting. This will trigger shortage of products on the local market due to challenges in securing raw materials.

These are the challenges Finance Minister Mthuli Ncube has to tackle when he presents the Mid Term Fiscal Policy review statement in Parliament today. Companies are suffocating from the Covid-19 effects and require a tax relief. Civil servants are also clamouring for a decent salary and want government to restore the salaries to the October 2018 levels where an average salary for a government employee was about US$450. Treasury is preaching fiscal consolidation having learnt from the past’s misdeeds where government spending was unchecked as if money grows on trees. Will these challenges whet government’s appetite to borrow from the central bank and become an aggressive player on the domestic market? It requires a balancing act and fiscal marksmanship to cut the coat according to the size of the cloth.

 

Related Articles

0 0 votes
Article Rating
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
Back to top button
Business Times
0
Would love your thoughts, please comment.x
()
x