Inflation to drop by December: Mthuli

09 Oct, 2019 - 00:10 0 Views
Inflation to drop by December: Mthuli Prof Ncube

The Herald

Golden Sibanda Senior Business Reporter
FINANCE and Economic Development Minister Mthuli Ncube says Zimbabwe’s monthly inflation rate will fall to 10 percent by December on account of ongoing fiscal and monetary policy reforms.

Under the short-term blueprint, the Transitional Stabilisation Programme, the Treasury chief has worked to increase tax revenue (including 2 percent tax), instituted fiscal consolidation (to cut budget deficit), and discontinued use of the central bank overdraft window and private issuance of Treasury Bills to fund public expenditure.

The minister has also, through the Reserve Bank of Zimbabwe, tightened monetary policy and restored local currency to give the central bank full leverage of monetary policy tools for inflation targeting and keeping money supply growth on a leash, among other objectives.

Monthly inflation in the first half of 2019 has mostly trended up and at variance with Minister Ncube’s expectations, who had anticipated gradual decline and the annual rate to fall below single digit levels by year end.

This was based on the technical assumption that since inflation stepped up in October 2018, it created a huge annualised gap with the prior year figure. The logic was therefore that after 12 months the step would contract substantially to give lower inflation, but this has not been the case as the exchange rate dynamics piled pressure on prices.

Zimbabwe’s initial inflation calculations were based on US dollar indices and following introduction of a local currency in February this year, Minister Ncube announced in the 2019 Mid Term Fiscal Policy Review that the annual rate of inflation would be suspended until February 2019.

It is expected calculating inflation figures using indices based on a same currency will provide a more accurate picture of inflation trends in the country, the second Zimbabwe has re-based inside a decade.

Zimbabwe re-based its annual inflation a year after switching to a US dollar denominated multi-currency in February 2009 after its domestic unit was rendered worthless by hyperinflation. Prior to dropping the domestic currency and dollarisation in 2009, Zimbabwe’s annualised inflation rate had peaked at 231 percent at the last official count as of July 31, 2008.

Minister Ncube said Zimbabwe’s economy has been under severe inflationary pressures for the most part of the first half of this year due to high money supply growth in 2018, driven by high unsustainable fiscal deficits.

“This gave rise to exchange rate misalignment, with further depreciation after the liberalisation of the exchange rate,” he said. “As a result, month on month inflation was at 10,8 percent in January 2019, slowed down in February, March and April before firming up in May to reach 39,3 percent in June.

“With continued implementation of fiscal and monetary policy reforms and other structural policies, inflation on monthly basis is expected to stabilise around 10 percent by end 2019 and at 2,3 percent by end of 2020,” Minister Ncube said in a pre-budget strategy paper.

Zimbabwe’s annual inflation raced from 5,39 percent in September, as Minister Ncube’s reform programme took root, to 175,5 percent in June this year, as pricing in the economy tracked changes in exchange rates amid an acute United States dollar crunch.

Zimbabwe has suffered the brunt of import dependency, which technically has caused imported inflation, amid low industrial and agricultural productivity coupled with lukewarm performance on the exports front.

Cumulative the Southern African country’s merchandise exports for 2019 up until July increased by 7,2 percent, from US$1,96 billion during the same period in 2018, to US$2,1 billion.

This was despite a decrease in gold exports, and largely on nickel and tobacco. At the same time, imports for the period under review sharply declined by 21 percent, from US$3,6 billion which was recorded in the comparable period in 2018, to US$2,8 billion in 2019.

As such, the trade balance on goods for the period under review improved by US$902 million, to a deficit of US$679 million in July 2019 compared to a deficit of US$1,58 billion recorded in the comparable period in 2018.

 

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