Zimbabwe: Grim Inflation Data Dims Budget Optimism

The real test of Zimbabwe's spending plan - inflation - came to the fore less than 24 hours after Finance Minister Mthuli Ncube read the $3.9 billion budget for 2020 amidst an economic crisis.

Zimbabwe's data collector ZimStat, said on Friday that inflation for October accelerated to 403 per cent, up from 290 per cent a month earlier. Month on Month inflation, doubled from 18 per cent to 39 per cent, bringing to the fore the challenge Prof. Ncube faces in realising the budget theme of productivity, growth and job creation.

The latest inflation data played into the hands of critics who have been suspicious that President Emmerson Mnangagwa and his economic managers are out of touch with reality.

Tweeps accused Prof. Ncube of getting key economic indicators wrong, singling out inflation, economic growth and exchange rate.

On Thursday, Prof. Ncube unveiled the 2020 national budget that targets to grow the economy by three per cent.

The forecast from a projected 6.5 per cent contraction this year will be driven by the expected recovery of the agriculture sector and improved electricity supply.

Presenting the budget to parliament, Prof Ncube said a devastating drought and a deadly cyclone that swept through he southern African country this year had dimmed hopes of faster growth.

Prof. Ncube said the government is also banking on an array of tax incentives, tourism and investments to stimulate the economy.

He also defended austerity measures that spawned labour unrest with doctors on a two month strike to date.

"Austerity was not retribution, national finances were in shambles and required re-balancing," Prof Ncube told Parliament.

To appease workers, the government said it would pay the bonus (thirteenth cheque) and allowances for civil servants at the end of November instead of over three months he had projected last month.

The budget announcement came on the backdrop of a deteriorating economic situation marked by shortages of electricity, fuel, medicines and hard currency.

Prof. Ncube said that, henceforth, electricity and fuel pricing will be on a cost recovery basis and seek to bring them in tandem with those in the region and enhance industrial competitiveness.

Investors in the insurance sector, however, are required to recapitalise their businesses following a fifteen fold increase in minimum capital requirements.

To bolster energy supply, Hwange Thermal plant would be completed by 2022 and 20 more solar projects by independent power producers brought on-stream.

However, critics said an urgent review of the country's energy sources was needed.

"It is prudent for us to slowly dilute our energy mix by phasing out thermal energy with its associated costs to the environment. Subsequently all rural electrification projects should be running on renewable energy," ZimBollar Research Institute tweeted in its overview of the budget.

While removing retail subsidies for maize and wheat, Prof. Ncube said climate smart agriculture would be prioritised and pooled financing introduced. A national venture capital fund was also allocated more money to bolster local content creation and create jobs under a presidential youth enterprise fund.

An export revolving fund initially targeting horticulture will also be set up from January 2020 with a seed capital of $20 million.

President Emmerson Mnangagwa's government has over the last two years been battling to reverse years of economic collapse under his predecessor, the late Robert Mugabe.

In June the country ended a decade of dollarisation and re-introduced its local currency that was abandoned in 2009 due to hyperinflation.

The local unit, however, has been losing value rapidly against the US dollar due to poor exports.

Prof Ncube said the government would implement a uniform exchange rate across all sectors, in essence removing preferential allocations that were extended to the mining and power sectors. This, he said, would remove arbitrage.

A severe drought during the 2018/19 farming season and a cyclone that killed hundreds of people and destroyed infrastructure in the eastern parts of the country worsened the economic situation.

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