Mthuli’s moving budget target shows growing inflation threat

Zimbabwe IMF
Inflation poser: Ncube under pressure as prices rise

Finance Minister Mthuli Ncube says he will propose a ZWL$900 billion budget for 2022, more than double this year’s total, as the country struggles with surging inflation.

In July, Ncube had signalled plans for a ZWL$579 billion budget in 2022 and the latest upwards revision signals how inflation is impacting the government’s planning.

“The overall 2022 budget envelope is ZWL$900 billion. However, my last count of the bids submitted by line ministries indicates resource requirements in the excess of ZWL$3 trillion,” Ncube told MPs at a pre-budget meeting on Monday.

“Surely, this is beyond our capacity, and more fundamentally, poses challenges from a prioritisation point of view,” Ncube said, without giving any indication what plans would be dropped.

The 2021 budget is worth ZWL$421.62 billion.

Ncube is under pressure to raise civil service wages, which unions say have fallen well below the poverty datum line in real terms.

To proposals from MPs to increase the tax-free bands and give some relief to workers, Ncube said these would be revised in the budget. But, showing his reluctance to give a lot away, Ncube said any tax breaks would be “cognisant of the need to ensure a balance between stimulating domestic demand as well as generating fiscal revenues commensurate with the growth in the Gross Domestic Product”.

Rising inflation

Although year-on-year inflation stood at 54.49% in October from a high of 837.53% in July 2020, the government says inflation could quicken towards the end of the year due to rising international energy and food prices as well as a weaker local currency.

The central bank has had to revise its year-end inflation target twice this year. Inflation is now expected to close the year in the 35% to 53% range, after the initial forecast of below 10%.

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Ncube brought back the local currency in 2019, ending a decade of dollarisation. However, the local unit has rapidly lost value since its return.

The government has, in recent weeks, cracked down on black market foreign currency trade in a bid to stop the slide in the currency’s value.

Although the official exchange rate of the Zimbabwe dollar is 97 to the United States dollar, the local unit is trading much weaker on the unofficial market, with some rates as low as 200 to the greenback.

Ncube has resisted pressure, including from MPs, to ditch the Zimbabwe dollar and declare a US dollar budget.

“We cannot adopt the United States dollar alone as the official currency,” Ncube told the MPs.

“You were there before and there were queues at banks, huge foreign currency deficits and you had deflation. That was because of the US dollar. It is not a good idea, and it will be suicidal to do so.”