Govt spending projected to increase
GOVERNMENT spending is seen increasing by nearly 8% this year as Zimbabwe gears up for the next general elections scheduled for later this year, a new report done by a United Kingdom-based research firm has shown.
According to the latest Fitch Solutions research note, while Zimbabwe’s economy will accelerate to 2.4% in 2023, from 2.0% in 2022, the country faces enormous political risk in the short to medium term.
“Real government consumption is set to increase by 7.8% in 2023, acting as a key economic driver.
“While the state budget for 2023 has not yet been finalised, the Budget Strategy Paper (released in July 2022) suggests that expenditure will remain unchanged as a share of GDP between 2022 and 2023, Fitch says.
“We doubt that policymakers will have the fiscal discipline to keep to this target in an election year and anticipate that government consumption will actually increase from 21.0% of GDP in 2022 to 21.3% of GDP in 2023, and will contribute 2.0 percentage points (pp) to headline growth — up from 1.2pp in 2022.
“The sharp increase in state expenditure should also result in faster consumer spending growth. While civil servants account for less than 2% of the total Zimbabwean labour force, their salaries are projected to amount to 8.2% of GDP (or 45.9% of total government expenditure) in 2022.
“Accordingly, an expansionary budget that involves higher spending on civil service salaries is likely to provide a major boost to household spending.”
Still commenting on mining, Fitch says an increase in royalties will create more revenue for Treasury.
“Moreover, the government has increased mining royalties for platinum and lithium to 5.0%, from 2.5% previously, which will further bolster government revenue,” Fitch says.
“Government spending will also remain elevated, particularly in the run-up to general elections in 2023. Funding spending will prove challenging, and over the long term government spending will be constrained by a drop off in revenue from taxes and the limited options for credit until the state clears its outstanding arrears with multilateral lenders. As a result, growth in this segment will increase by an average of 4.2% annually between 2022 and 2031.”