9 January 2019

Zimbabwe: Economists - Labour Unrest, Looming Drought to Force $2 Billion Budget Overrun

Photo: The Herald
Finance and Economic Development Minister Mthuli Ncube (file photo).

Zimbabwe's ongoing labour unrest and the possibility of a drought this year could force government to overrun its budget by over $2 billion through borrowing, economists have warned.

In separate interviews with NewZimbabwe.com Tuesday, top economists Prosper Chitambara, Godfrey Kanyenze and John Robertson were all agreed government may be forced to overspend in attempts to absorb the mounting fiscal pressures.

Chitambara said the myriad problems that confront President Emmerson Mnangagwa and his administration this year spell doom for a government that is struggling to maintain a delicate balance between the need to tame runaway expenditure and to meet urgent employment costs.

"This year is going to be very tough due to the possibility of the El Nino induced drought which poses the threat of below normal rainfall being received which will result in the import deficit widening because government will be forced to subsidise food imports," he said.

Chitambara further said intensifying wage demands by its restless workforce could find government left with no choice but to give in at a time inflation has surged to over 30 percent.

"The direct effect is that government will resort to domestic borrowing and ultimately crowd out private sector investors and this will affect the potential to unlock the much needed investment.

"Inflationary pressures will pile up due to the increase in money supply and unless government implements strong political reforms, these challenges are unlikely to go away," he said.

Another economist, Godfrey Kanyenze said that government plans had been thrown into jeopardy due to lack of social ownership.

"These are the effects of implementing policies that are not owned by the majority," he said.

"You will recall that government's objective set out in the 2018 budget statement is to reduce overspending but the problem is that such details were not shared with the public and this has now created a situation where the public does not share the same vision with the executive," he said.

Kanyenze said that government will definitely be forced to opt for unbudgeted expenditure which will see the fiscal deficit widening.

John Robertson, another economist, also shared the same views, saying it was highly likely that government will spend way more than it collected through taxes.

He also said the 2 percent mobile money tax being collected may go a long way in absorbing the over expenditure shock.

Last year, government revealed that the cumulative budget deficit for the period January to September 2018 stood at US$2.7 billion.

Finance Minister, Mthuli Ncube said that the huge deficit incurred was on account of unbudgeted expenditures relating to employment costs, support to agriculture as well as development capital expenditure and net lending, primarily to public enterprises.

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