Zimbabwe’s economy projected growth revised downwards

• The economy is now projected to grow by 4.6% during 2022, a downward revision from the original 5.5% projection
• Reserve money stock has increased to ZW$33.6 billion as of June 30, 2022.
• Merchandise exports and imports increased by 33% and 15% to US$3 516.5 million and US$3 746.8 million. Exports are expected to reach US$7.3 billion
• The country is doing well in terms of budget transparency and is now ranked third in Africa, after South Africa and Benin.

Zimbabwe’s Finance and Economic Development Minister, Mthuli Ncube, presented the 2022 supplementary budget on Thursday amid skyrocketing inflation that has since eroded this year’s national budget.

This is the first time that Minister Ncube has presented a supplementary budget since he was appointed Finance Minister by President Emmerson Mnangagwa in 2018.

The economy is now projected to grow by 4.6% during 2022, a downward revision from the original 5.5% projection, and follows an estimated 7.8% positive growth trajectory for 2021. This positive 2022 growth projection is supported by increased activity in all the productive sectors except agriculture which was weighed down by the unfavourable 2021/22 rainfall season and high input costs.

Read: Inflation: Zimbabwe’s Central Bank raises interest rate to 200%

According to an article by Bulawayo24 dated July 26, 2022, Zimbabwe has witnessed a sharp rise in inflation which has led to the depreciation of the Zimbabwean dollar. The Russia-Ukraine conflict has also exacerbated the economic situation by fueling fuel and food prices.

According to the Minister of finance and economic development budget strategy paper: 2023, countries across the globe face rising commodity prices and inflation, disruptions to world trade, and tightening financial conditions mainly due to the COVID-19 pandemic and the ongoing Ukraine/Russia conflict. Resultantly, all nations have been forced to make difficult policy tradeoffs to cope with adversity and attain macro-economic stability whilst also supporting economic recovery and growth.

Zimbabwe’s inflation has increased from 60.7 per cent in December 2021 to 191 per cent in June 2022.

Recently, the government introduced various measures, including hiking the bank policy rate from 80 per cent to 200 per cent per annum and introducing gold coins to tame rising inflation.

Read: How international buyers can export Zimbabwe’s gold coins

In addition to the supplementary budget, the minister also presented the traditional 2022 mid-term fiscal policy statement. In parliament, the minister said fiscal developments during the first half of the year, characterised by increasing revenues and expenditure pressures, necessitated the revision of the approved 2022 National Budget.

“The revision is necessary to allow spending agencies to meet increasing costs of undertaking originally budgeted programmes and projects that will ensure the 2022 objectives are met,” he told legislators.

Here are the highlights:

1. Reserve money stock has increased to ZW$33.6 billion as of 30th June 2022, largely due to growth in statutory reserves in line with the thrust of tightening monetary policy.

   

2. The annual growth in broad money was largely driven by increases of 316.9% and 286% in credit to the private sector and net claims on Government, respectively.
3. Zimbabwe’s balance of payments remains favourable with a current surplus of US$387.1 million having been registered during the first half of 2022.
4. Merchandise exports and imports increased by 33% and 15% to US$3 516.5 million and US$3 746.8 million, respectively, during the first half of 2022, compared to the same period in 2021.
5. Exports are expected to reach US$7.3 billion, spurred by increases in mineral receipts benefitting from the mineral commodity price boom and increases in agriculture and manufactured exports.

   

6. 2022 National Budget was premised on revenue collections of ZWL$850.8 billion (16.8% of GDP), expenditures of ZWL$968.3 billion, and a target budget deficit of ZWL$76.5 billion (1.5% of GDP). Unaudited outturn during the first half indicates revenue collections of ZWL$506.6 billion against expenditures of ZWL$534.5 billion. Resulting in a budget deficit of ZWL$27.9 billion against a target deficit of ZWL$45 billion.
7. As at the end of June 2022, public and publicly guaranteed debt stood at ZWL$1.3 trillion and US$13.2 billion, comprised of domestic and external debt, respectively.

   

8. Budget Transparency Performance, the country is doing well in terms of budget transparency and is now ranked third in Africa, after South Africa and Benin. Globally, the country is ranked 41 out of 120 countries according to the International Budget Partnership (IBP) latest Report.

   

9. Revenue collections to year-end are now projected at ZW$1.7 trillion, while expenditures are now estimated at ZWL$1.9 trillion. This is against the approved Budget of ZWL$968.3 billion, entailing additional spending of ZWL$929 billion.
10. The bulk of the Supplementary Budget (53%) is going towards employment costs to cushion public servants against the increasing cost of living. The balance of additional resources is going towards meeting Government consumables (18%), capital projects (19%) & social benefits (7%).

Meanwhile, Ncube reviewed the Pay As You Earn (PAYE) tax-free threshold on local currency remuneration from ZWL$300,000 to ZWL$600,000 per annum while adjusting the tax bands to end at ZWL$12 million from the current ZWL$6,000,000 per annum, above which tax is levied at a rate of 40 per cent, with effect from August 1, 2022.

“This measure is envisaged to increase disposable income, spur consumer spending and income for corporates,” he said.

“I also propose to review the local currency tax-free bonus threshold from ZWL$100,000 to ZWL$500,000 with effect from November 1, 2022.”

“Government remains committed to addressing the welfare of civil servants in a fiscally sustainable manner. The challenges of yesteryear where the wage bill crowded out other development expenditures should be avoided to create the right conditions for sustainable economic growth that will provide scope for payment of decent salaries to our hard-working workers,” he said.

However, according to an article by Bulawayo24 dated July 18, 2022, demands for United States dollar (US$) salaries have increased across all sectors of the economy as many employees struggle to buy basic commodities now being charged in the greenback.

Manufacturers of basic commodities are now charging their goods in US dollars for items such as sugar, milk, cooking oil, and Mazoe orange crush juice, forcing retailers and wholesalers to follow suit.

Zimbabwe Congress of Trade Unions (ZCTU) president Florence Tavuringa told NewsDay that the union would continue to fight for USD salaries.

“Since time immemorial, ZCTU has been and continues to be on the forefront in demand for US dollar-based salaries. We will continue to demand US dollar salaries because we continue to have policymakers, particularly the Ministry of Finance, gaggling around their so-called business minds or theories at the expense of citizens,” Taruvinga said.

Read: Zimbabwe: President Mnangagwa’s measures to restore investor confidence