Mthuli to table supplementary budget

LIVINGSTONE MARUFU

Finance and Economic Development Minister, Mthuli Ncube could be forced to table a supplementary budget  to deal with new economic headwinds that have emerged  since the 2022 National Budget was drafted, multiple economists  have said.

Ncube presented a ZWL$927bn  budget for this year.

But the  budget has already been wiped by inflation and a volatile exchange rate. Ncube last tabled a supplementary budget in 2019.

“I suspect that there will be a supplementary budget and an increase on taxes to earn more revenue.

“The supplementary budget will be done to address the wages that need to be increased as a matter of emergency to cushion the workers from the rising inflation,” economist Tony Hawkins told Business Times.

He added: “The current  budget provides  for a 75% increase in the public sector wage bill and given the circumstances on the ground they may at least double that.

“The agriculture support programmes are expected to cost awfully more due to the increase in fertiliser, fuel and chemical prices as they presented a budget before no one knew the Russia-Ukraine would occur.

“There is going to be massive spending as inflation  is far ahead than they thought, remember that in the budget they claimed that the inflation will be around 30% by year end  and now it’s above 130%,” he said.

Hawkins said it could end up above 200% by end.

He also  said revenue collection could also be massive due to the inflationary push but the inflation will be way ahead of that.

Another economist Gift Mugano said the supplementary budget  was expected given the government spending spree on construction and agriculture.

“Given the developments in the economy we are likely to have  a supplementary budget as some sectors like agriculture have almost spent over 75% of their budgets and with the rise in fuel prices, fertilisers and raw materials more money will be needed to keep the economy going,” he said.

“The government’s spending on agriculture and construction will push inflation pressures on the already fragile market and with the spending in full swing, more money will be needed to fund the programme,” 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.

“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.

He said Zimbabwe 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.

Economist Cornelius Dube said that the budget has lost relevance in recent years due to inflationary pressures.

“Some Ministries have already utilised their budgets and will go to other ministries that have underutilised their budgets so they might be a possibility of supplementary but it is not yet clear,” Dube said.

Economists said the government’s spending spree on the construction sector, winter wheat, census and vetting of war collaborators was fuelling inflation as it is pushing up the exchange rate as beneficiaries will be in streets in search of the elusive greenback.

Analysts said the government’s huge spending on construction and agriculture sectors have made it difficult  for the monetary authorities to stabilise exchange rate as the recipients will be in the market to offload the ZWL$ in favour of the foreign currency.

The argument was that the government should use long term instruments rather than short term financing which pushes up inflation.

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

During the campaign years, political parties will go out of their way and come up with populist policies to appease the masses to garner support.

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

There is also an act of polarisation as protagonists will sabotage each other to the extent of some sections of the industry making goods unavailable.

Economist Christopher Mugaga said: “The year 2022 is a campaign period and businesses are afraid of the spike in government expenditure associated with election business cycles.

“Any populist policies are highly likely to sustain the current inflationary pressures further fuelling the divergence between the official (auction) exchange rate and the parallel market rate.”

He said the two main reasons behind the pessimism are the fears of other waves of the Covid-19 pandemic and the upcoming 2023 general elections.