Zimbabwe’s economy faces serious risk from likely increased spending to finance election-related activities ahead of and during forthcoming harmonised polls that economic analysts warned may upset the current fragile stability.
Finance and Economic Development Minister Mthuli Ncube, in his 2023 National Budget statement last year, earmarked $76 billion for the 2023 harmonised elections to cover various activities, with $53 billion earmarked for the actual polling at the turn of the century, saw Zimbabwe slapped with economic embargoes by Britain, the US and their allies, which saw the economy go into a tailspin.
The economic meltdown that ensued affected the country’s ability to service existing loans from foreign institutions such as the World Bank, African Development Bank, bilateral lenders and other international financiers.
This prevented the country from accessing cheap external funding, negatively impacting its sources of balance of payment support, investments and economic growth, while the domestic economy contracted for nearly two decades.
Mthuli is on record saying the level of public and publicly guaranteed external debt at 71,2 percent of gross domestic product, continues to be unsustainable as reflected by external debt arrears.
Consequently, the country has been unable to meet its external debt service obligations, which has resulted in the accumulation of external debt arrears since 2000, estimated at US$6,5 billion as at the end of December 2020.
The Government has since developed an Arrears Clearance and Debt Relief Strategy to assist the country to regain access to new concessional financing from both multilateral and bilateral Development Partners, as part of its broad re-engagement drive.
Prof Hawkins said the upcoming elections posed even more serious challenges for the economy on the domestic side with the main risk largely expected to come from money creation due to frenetic spending by the Government.
“Every day we read about price (increases), such as the recent 40 percent or so increase in maize (producer) price and then we have got 90 percent of last year’s wheat not being paid for and the Government is issuing Treasury Bills to pay that.
“And I think going forward . . . we are going to have more of those kinds of payments, as a result of much higher prices of the cost of inputs like fertilisers that are virtually all imported and costing more.
“To add to that I think the Government has not provided for that in the (national) budget, therefore and depending on how the revenues go they would have to print more money. I think the exchange rate will start sliding again, it has been looking a bit weak recently. Inflation, month per month, is likely to increase.
“Those are the main factors, I do not think the Government will do anything between now and the elections other than spending money. They may even cut interest rates . . . there will be pressure from the politicians,” he said.
Zimbabwe’s Reserve Bank earned the tag of ‘most aggressive bank’ in the world when it hiked its bank policy rate to 200 percent mid-last year from 80 percent in an effort to stabilise the exchange rate and rein in resurgent inflation.
Prof Hawkins said more interesting will be how the Government responds after this year’s elections, that is whether it will maintain the current “facade” and keep the Zimbabwe dollar as legal tender when it is increasingly being sidelined in favour of the US dollar.
He said the use of the Zimbabwe dollar was distorting everything in the economy, while authorities continue to give inflation figures that do not mean much as they are calculated based on Zimbabwe dollar currency while most transactions are done in forex.
Another economist, Brains Muchemwa, said the harmonized elections, which gobble an estimated 10 percent of the national budget in a fiscal year, had the potential to upset the monetary balance in the economy.
“More so that this expenditure is concentrated within three months. And considering Government expenditure is increasing 100 percent in 2023 to $4,2 trillion, the inflationary pressures in 2023 are very high and will pose serious challenges to policymakers,” Muchemwa opined.
Resultantly, he said the Zimbabwe dollar was expected to remain weak and depreciating while sustained price increases would mean that the annual inflation rate closes the current year “northwards of 150 percent”.
“Unleashing tight monetary stance, with the fiscal side complementing with restraint on unbudgeted expenditures will help in minimising the impact of the surge in money supply on prices and the exchange rate,” he said.
However, another economist, Eddie Cross, said the expenditure for this year’s harmonised elections had already been provided for in the 2023 national budget and “I do not see them moving away from the budget significantly”.
But Cross, while he was confident the Government had the next elections pretty sorted out, it would be counter-productive if it resorted to populist policies and significantly loosen the purse strings outside of what is provisioned in the budget. – Business Weekly