Zimbabwe’s inflation is forecast to fall drastically in 2023 with the monthly rate seen between 1 and 3 percent while the annual rate is seen dropping to double-digit figures on account of the tight fiscal and monetary policy stance.
Announcing the $4,5 trillion 2023 National Budget Statement at the new Parliament building in Mt Hampden yesterday, Finance and Economic Development Minister Professor Mthuli Ncube projected the economy would grow by 4 percent this year, down from the initial forecast of 4,6 percent and 3,8 percent in 2023.
Economic growth during 2022 is mainly expected from mining (10 percent), construction (10,5 percent) and accommodation and food services sectors (56,3 percent).
However, the average growth rate for the period 2021–23 is estimated at 5,4 percent, which is in line with the National Development Strategy (NDS1) target.
Minister Ncube said global shocks had heightened inflationary pressures in all countries worldwide, resulting in the highest interest rates hikes, as central banks across the globe seek to dampen demand to contain inflation.
Global inflation, which has compounded domestic inflation pressures, has risen faster and more persistently than originally expected, rising from 4,7 percent in 2021 to 8,8 percent in 2022, the highest rate in advanced economies since 1982.
It is, however, expected to decelerate in 2023 and 2024 to 6,5 percent and 4,1 percent, respectively. The outlook points to faster disinflation in advanced economies than in emerging markets and developing economies.
In response to domestic inflation dynamics, as well as the pass-through effects of higher energy, food prices, and supply chain cost pressures on the economy, the Government tightened fiscal and monetary policies to contain the excessive depreciation of the local currency against the US dollar on the parallel market.
Local currency depreciation has largely been the major driver of domestic inflation. “This has resulted in the convergence of the auction exchange rate and the willing buyer willing seller exchange rate,” Minister Ncube said.
Among other measures implemented by the Government were the issuance of gold coins, enforcement of value-for-money audits by the Government in its procurement processes and effective monitoring, as well as enforcement of anti-money laundering measures by the Reserve Bank, which have re-anchored inflation and exchange rate expectations.
“Resultantly, month-on-month inflation declined from 30,7 percent in July to 3,2 percent in October 2022, whilst annual inflation also fell from 285,1 percent in August, to 268,8 percent in October 2022,” the minister said.
In 2023, annual inflation is projected to continue slowing down to double digit live doubl by continued tight monetary and fiscal policy stance, stable foreign exchange market, strengthened Government procurement processes, implementation of measures to mop up excess liquidity, (such as gold coins) and stable global commodity prices.
The Treasury chief noted that monetary and fiscal policies, as well as coordinated interventions by the authorities, have been central in sustaining the current inflation deceleration and exchange rate convergence path.
Going forward, the minister said the policy objective will be maintained and adjusted where necessary.
“In this regard, the Government is setting a month-on-month inflation target range of between 1 percent to 3 percent, and a fiscal budget deficit of not more than 1,5 percent of GDP (Gross Domestic Product) during 2023,” he said.
The minister said going forward, any deviations from these critical targets will warrant further interventions by both fiscal and monetary authorities.
Recent developments, Professor Ncube said, where the gap between the official and parallel market exchange rates have narrowed from above 500 percent between January and July 2022, to less than 15 percent currently, indicated convergence that engenders price (inflation) stability going forward.
Overall, Minister Ncube said the projected 3,8 percent growth during 2023 will be sustained mainly by mining, construction and agriculture, as well as accommodation sectors.
These will be underpinned by global economic growth slowing down, favourable international commodity prices, normal to above normal rainfall, stable power supply, tight monetary and fiscal policies, and continued use of the multi-currency.
“The uncertain global economic outlook presents risks to the above projections through continued tapering of international commodity prices.
“Similarly, the impact of climate change through droughts, floods, cyclones, as well as uneven distribution of rainfall may affect the attainment of the desired targets,” Minister Ncube said.