According to the statistics authority, Zimbabwe National Statistics Agency (ZimStat), price inflation eased in the month under review. The statistics show that general prices as measured by the all-items Consumer Price Index (CPI) spiked by 255% in the last 12 months ending November 2022, down by 13.8 percentage points from the previous month’s outturn. From a month-on-month (MoM) perspective, the inflation rate decelerated from 3.2% recorded in October 2022 to 1.8% in November 2022.
The ZimStat disaggregated inflation data by province shows that Mat South had the highest monthly outturn followed by Harare (2.8%), Mat North (2.7%), and Bulawayo (2.1%). Granular analysis of the figures shows that at 301.4% YoY & 0.9% MoM, the Food category (which is 30.34% of the total consumer basket) was the main driver of inflation. Meat (4.4%), fruits (1.9%), food (0.9%), fish &sea food (0.8%), and food products N.E.C (0.4%) were the groups with high inflation in the month. Accordingly, an individual required about ZWL21 652.27 in November 2022 to meet the minimum needs basket cost (Food Poverty Line, FPL). The FPL is the minimum income required by a person to afford a daily energy intake of 2 100 calories. As for the Total Poverty Consumption Line (TCPL) -the total minimum income an individual needs to purchase both non-food & food items for them not to be deemed poor- official statistics show it closing November 2022 at ZWL28 516.73, up 1.3% when compared to October 2022 amount of ZWL28 144.07. It, therefore, means an average household of four (4) needed a minimum income of ZWL114 066.92 in November 2022 to be considered out of poverty.
The public applauds both monetary and fiscal authorities on some of the policy actions they have implemented in recent months to slow inflation growth. November 2022 completed five (5) consecutive months of disinflation trajectory, a trajectory that began in July 2022 when monthly prices slid by 5.1 percentage points to 25.6% from 30.7% recorded in June 2022. Now, buoyed by this rapid disinflation path, the government has projected an average monthly inflation of between 1-3% in 2023. The authorities expect this inflation target to be anchored by a tight monetary policy stance, stable Zimbabwe dollar (ZWL), and sustainable fiscal spending as shown by projections of a “sustainable” fiscal deficit of 1.5% of national output (GDP) as stated in the 2023 budget statement.
If realized, a stable price environment will bring great relief to citizens, particularly the poor majority who are earning way below the poverty datum line (PDL). This is because the massive ZWL depreciation and elevated prices experienced for most of 2022 have largely eroded real incomes, lowered aggregate consumer consumption, widened income disparities, and plunged the majority into poverty. For instance, the 2022 World Bank statistics show that at least 40% of the population is living in extreme poverty in Zimbabwe. Also, the local currency & price volatilities have hugely affected business predictability. As I explained in last week column, business predictability is key because it enables great market fit and quality customer service while eliminating waste and inefficiencies to build a strong foundation of sustainable enterprise. In addition, an astronomical spike in the Reserve Bank of Zimbabwe’s (RBZ) benchmark policy rate from 80% to 200% has fuelled the cost of money. More so, high fuel prices as well as prolonged electricity load-shedding schedules compounded the cost of doing business in 2022. Generally, a high-cost environment feeds chronic inflation and scares away private-sector investment which is key in powering GDP, incomes, and employment growth.
However, it remains to be seen if the Reserve Bank of Zimbabwe (RBZ) will be able to meet this inflation target given the likely risks to the outlook. The forthcoming general election will likely derail the sustainability of the Treasury spending path. For instance, a projected 136.8% jump in budget expenditure ceiling to ZWL4.5 trillion in 2023 from 2022’s ZWL1.9 trillion can attest to this assertion. If the national output growth is expected to decelerate further in 2023 from 2022 levels, the public can then ask: What is informing the Treasury’s projected jaw-dropping spike in revenue collections by Zimbabwe Revenue Authority (ZIMRA) next year? From an outsider’s perspective, it is evident that fiscal authorities are anticipating elevated ZWL depreciation and sustained price increases in 2023 -high prices mean increased revenue collection for ZIMRA. Also, based on recurring deadly political clashes like cases in Matobo and Gutu, there is a high chance for the upcoming election season to degenerate into full-blown political violence, civil unrest, and abuse of human & political rights.
Furthermore, the 2023 proposed budget shows that the government is facing an increased public borrowing requirement in 2023. Public debt will jump significantly in 2023 as Treasury faces a mammoth task of financing a ZWL575.5 billion budget gap comprising an overall deficit of ZWL336.9 billion and net loan repayments of ZWL248.6 billion. The Treasury proposed to finance this deficit by issuing a US$100 million domestic bond, US$400 million external loan facility is expected from Afreximbank, and ZWL82.8 billion treasury bills (TBs). Ahead of the 2023 harmonized elections, the Treasury will also gobble tens of millions of US$ as loans to lawmakers and cabinet ministers together with their deputies which have debt ramifications. An unsustainable debt level depletes national reserves, crowds-out both private investment & public service delivery, constrains the countercyclical effects of fiscal policies and heights long-term market interest, tax, and inflation rates, among other effects.
More so, electricity shortages will likely persist in the first half of 2023 due to limited imports, uneconomical tariffs, constrained production at Kariba hydropower, and frequent breakdowns at nation’s aging thermal power stations. Electricity is a key business enabler; its scarcity increases business costs, balloons the inflation burden, and strains household budgets. The COVID-19 pandemic and Russia-Ukraine war with an indeterminate end also pose a greater risk to the price inflation outlook. For instance, the sanctions and countersanctions caused by the war are negatively affecting global supply chains, trade, production, and cooperation. As such, I expect the resultant elevated global inflation to continue for most of 2023 thus presenting a great risk for perennial net importers like Zimbabwe.
Therefore, to help suppress excessive price growth in 2023, the authorities should consider some of the alternatives proffered herein:
• The authorities should implement complementary monetary and fiscal policies, with the latter spending sustainably to ensure and maintain the sustainability of ZWL liquidity growth in the market.
• Government should intensify engagement & offer lucrative incentives to independent power producers (IPP) to increase domestic production of renewable energy. These incentives can be extended to businesses and households to increase their uptake of solar energy thus bringing relief to the constrained national grid.
• The existing high tax environment is adding to business costs and subduing disposable incomes. Hence, domestic resource mobilization (DRM) should be expedited in 2023:
o curbing leakages from corruption & illicit transactions
o lowering tax compliance costs
o reducing capital controls
o strengthening taxpayer motivation & education
o formalizing informal businesses.
• Robust reforms (economic, structural, electoral, etc) should also be part of the policy mix to reduce prevailing growth-retarding pricing distortions, avoid crowding-out of public service delivery, protect rule of law & property rights, and help Treasury secure the direly needed support from its creditors to meaningfully resolve the decades-long debt conundrum.
Zvikomborero Sibanda is an economic analyst and an astute researcher. He writes in his personal capacity. He can be contacted via email:
br**********@gm***.com
Twitter: @bravon96
