Austerity and economic headwinds in Zimbabwe to persist - IH Securities
Harare, Zimbabwe (PANA) - Financial services firm IH Securities expects austerity and economic headwinds to persist after a plethora of new taxes introduced by the Zimbabwe government in last week’s Mid-Term 2019 Fiscal Review.
In an analysis on Tuesday, the firm said from their view the government statement did not reverse any of the economic adversities.
“From our view, the 2019 Mid-Year Budget Review does not materially reverse persisting economic adversities, which include stagflation, acute foreign currency shortages, infrastructure deficiencies and power shortages. The MoF (minister of finance) has made several adjustments, including an upward revision of the annual national budget, excluding loan repayments, to $18.6 billion and adjustments to the austerity measures stipulated in the National Budget announced in November last year to account for currency depreciation and mounting inflation,” IH Securities, said.
“The reduction of subsidies through the much-awaited adjustments, i.e. electricity tariffs, are anticipated to mount further inflationary pressure in the short-term. Furthermore, the revised budget poses a risk of burgeoning money supply amidst government’s target money supply growth of 10% y/y by December 2019. As it stands, money supply as of May 2019 stood at $13 billion...from $10 billion in December 2018.
“Meanwhile, the revised aggregate government expenditure is projected at $18.6 billion, with the treasury anticipating a $4.6 billion fiscal deficit, implying a potential for further growth in money supply by year end from the $13 billion reported in May. Furthermore, the government is in the process of issuing $180 million worth of T-bills with plans afloat to establish a functional auction system for T-bills before year end.”
In that regard, IH securities said they expected a further depreciation of the Zimbabwe dollar, inflationary pressure and economic adversity to persist in the short to medium-term, until money supply and government spending was curbed.
Last week’s Mid-Term 2019 Fiscal Review statement sought to carry on with austerity while containing government expenditure.
However, the total government spending for the period January to June 2019 was ZWL$4.2 billion against a target of ZWL$3.7 billion, which is ZWL$532 million over-expenditure (15 percent). US$1 = Zimbabwe dollars (ZWL) $9.83.
In presenting last the mid-term review, Finance minister Mthuli Ncube said the negative variance was as “a result of inescapable and unforeseen expenditures on both current and capital heads, arising from higher than anticipated inflation, exchange rate fluctuations, drought and the devastating Cyclone Idai”.
Due to these challenges, Ncube proposed increasing the wage bill for civil servants from ZWL$4.1 billion planned for 2019 to ZWL$5.9 billion to allow for increments to salaries.
He further identified and scaled up social safety net programmes under health, education and social protection, which will see the initial budget increasing from ZWL$267.6 million to ZWL$1.135 billion
However, with the rapid erosion of salaries on the back of a devaluing currency these efforts are expected to have a minimal impact made worse by increase in fuel, electricity and alcohol taxes as well as government goods and services.
“It is our view that the recent hike in fuel and electricity prices will continue to exert an upward pressure on prices, resulting in further inflationary pressures in the short-term,” IH Securities said.
-0- PANA TZ/AR 6Aug2019
