2023 Budget to buttress stability, drive growth

Source: 2023 Budget to buttress stability, drive growth | Sunday Mail (Top Stories)

Business Reporter

The 2023 Budget, which made substantial allocations to health and education, including providing safety nets for the vulnerable and underprivileged, will likely buttress current economic stability and further drive economic growth, analysts say.

Finance and Economic Development Minister Professor Mthuli Ncube also allocated $1,1 trillion for key infrastructure projects such as roads, dams, energy, water and sanitation.

But, unlike in the past, where infrastructure projects were funded mostly from the Budget, this time the bulk of funds – $497,8 billion – will come from loan financing.

Development partners and statutory funds will contribute $19,8 billion and $134,4 billion, respectively.

To spur economic growth, Treasury proposed measures to boost production in local companies, including restoration of duty on selected basic commodities in line with representations from the country’s biggest business lobby group, the Confederation of Zimbabwe Industries (CZI).

About 52 percent of total expenditures will go towards the welfare of civil servants.

Economist Dr Reneth Mano said: “Better-paid civil servants are motivated to deliver public services and not as susceptible to corruption deal-making with the private sector.”

Having been affected by runaway inflation and depreciation of the domestic currency during the first half of the year, Zimbabwe timely adopted aggressive policy measures that resulted in the stability of the economy.

The Government had to double interest rates to curb speculative borrowing, suspend payments to some Government contractors accused of currency manipulation and introduce gold coins as an alternative investment to mop up excess cash on the market.

Monthly inflation consequently dropped from 16,1 percent in July to 3,2 percent in October.

Similarly, the parallel market exchange rate has stabilised at around $750 for US$1 and is now converging with the official exchange rates (interbank and auction rates).

“The Government has taken all possible measures to pull the economy out of the shadows and the fiscal policy has now laid the foundation to support the prevailing stability, a prerequisite for growth,” economist Mr Carlos Tadya told The Sunday Mail Business in an interview on Friday.

On Thursday, Minister Ncube vowed the Reserve Bank of Zimbabwe would maintain the tight monetary policy stance to sustain the stability needed to support economic growth.

He said the move by the RBZ to raise interest rates in line with inflation had “significantly” reduced speculative borrowing and brought stability to the exchange rate market.

“This policy position will be maintained going forward, while continuous review of the policy rate by RBZ will be undertaken in line with exchange rate and inflation developments.”

The central bank, Minister Ncube added, would use “all tools at its disposal” to lower exchange rate depreciation and higher inflation expectations, including preserving local currency value, reducing market liquidity and containing foreign currency demand on the parallel market.

“The overriding objective of the 2023 Budget of entrenching macroeconomic stability will accelerate economic transformation by promoting a conducive business environment that facilitates savings and investment, as well as enable long-term planning.

“Strong collaboration and complementarity between fiscal and monetary policy measures seek to entrench macroeconomic stability, with additional measures being implemented to keep market liquidity under control and accelerate the disinflation path, with the broad objective of achieving single-digit inflation and a stable exchange rate,” he said.

Minister Ncube projected the economy will grow by 3,8 percent in 2023, driven by mining, construction and agriculture.

Favourable international commodity prices, normal to above-normal rainfall, tight monetary and fiscal policies and continued use of the multi-currency system are further expected to support growth.

The average growth rate for the period 2021 to 2023 is, however, estimated at 5,4 percent in line with the National Development Strategy 1 target.

In the medium term, GDP growth is projected to improve to about 4,8 percent and 5 percent in 2024 and 2025, respectively.

The Zimbabwe National Chamber of Commerce (ZNCC) commended Minister Ncube for presenting “a fair budget” that focused on improving the welfare of ordinary people.

“It is a pro-poor budget, particularly when you look at the allocations made to education and health,” ZNCC chief executive officer Mr Christopher Mugaga said.