Year-on-year inflation is expected to continue on a downward trajectory to 35 percent by December 2021 on account of continued strict fiscal and monetary monitoring by government, the Finance and Economic Development Minister, Professor Mthuli Ncube has told legislators during the Mid-Term Budget Statement presented this afternoon.
This week, the national statistics agency- Zimstat announced that annual inflation has reached 56.3 percent -the first time to reach double digit level in over two years.
Monthly inflation expected to close the year below the 3 percent cap.
Inflation has been dropping sharply during the past 12 months with annual inflation reaching peak levels of 837 percent in July 2020.
The monetary targeting framework has seen reserve money being lowered from 25 percent as of last year to 22.5 percent in the current year, releasing some of the inflationary pressures in the economy.
One area that is potentially contentious with this mid-term budget is the decision by the Minister not to avail a supplementary budget stating that government needs to “Stay the course” and continue executing strict fiscal discipline.
In the build up to the mid-term statement, there had been widespread anticipation that the Minister would present some interventions to support business given the impact the COVID-19 pandemic has had to economic activity, particularly on the small and medium enterprises sector that couldn’t operate during the hard lock-downs.
Experts said support could have been either in the form of a cheaper bailout package or some fiscal interventions such as tax reliefs among others- all wasn’t to be.
“There is need to stay the course. Therefore, there are no policy changes as I believe the existing policies are achieving the desired results and are still adequate. We only need to stay the course, and any substantial policy changes will be introduced through the 2022 National Budget,” said Professor Ncube.
The Minister said government managed to stay on course the ZWL$ 421.6 billion expenditure projection for the year as pronounced in the 2021 Budget last year and has in the first half of 2021 spend ZWL$ 197.6 billion against revenue of ZWL$ 198.2 billion. This translates into ZWL$ 570 million budgetary surplus.
The major expenditure items are the compensation of public service works and the acquisition of non-financial assets by government. Government has also spent huge to beef the fight against COVID-19.
“In view of the persistent COVID-19 pandemic, intensive vaccination remains un-avoidable and a long-term solution to save lives and livelihoods utilizing the savings from last year. To date, resources amounting to US$93.2 million have been spent on vaccines alone. Government has set aside US$100 million for vaccines acquisition,” said Prof. Ncube.
On public debt, the Finance Minister outlined that access to external financing remains constrained, due to debt arrears; therefore, domestic financial markets remain the major source of budget financing.
Consequently, domestic debt as at end April 2021 amounted to ZWL$20.9 billion while Public and Publicly Guaranteed external debt including RBZ external guaranteed debt amounted to US$10.5 billion, representing 71.2 percent of GDP. External debt arrears alone make up over US$6.5 billion (77%) of total external debt.
Treasury has since started resumption of quarterly token payments to the Multilateral Development Banks (MDBs), the World Bank Group, the African Development Bank Group and the European Investment Bank and Payments to Paris Club Creditors will also begin in the second half of 2021.