FINANCE minister Mthuli Ncube on Thursday announced a ZW$4.5 trillion national budget to be mainly funded by new belt-tightening tax measures and potentially inflation-stoking interventions such as raising the value-added tax threshold and re-introducing import duty on basic commodities.
The current budget translates to US$7 billion using the official foreign exchange rate as of this week and US$5.6 billion using the parallel rate.
Treasury has also cut the GDP growth to 4% from 4.6% this year, a figure above the regional average of 2.5%. After implementing a cocktail of stringent measures to tame inflation, the country’s fiscal and monetary authorities have over the past few months been hyping the slowing down of price levels, which however continue to be one the highest on the planet.
With the manufacturing sector still recovering from economic contraction, imports will continue to be on the shelves of most supermarkets albeit at higher prices.
Following these measures, month-on-month inflation which in July stood at 30.7% eased to 3.2% in October as the authorities target single!digit figures going forward.
In 2023, officials are expecting annual inflation to drop to double digit figures underpinned by a tight monetary policy, stable foreign exchange market, strengthened government procurement processes and fairly stable global commodity prices.
Ncube told Parliament this week that in the absence of budgetary support from international financial institutions, Treasury would rely on domestic resources to finance the election budget. He said total ministry bids more than doubled to ZW$8,7 trillion highlighting growing appetite by Ministries, Departments and Agencies (MDA) on government coffers.
“Mr. Speaker Sir, you will recall that Government suspended customs duty on basic commodities, in order to cushion consumers from unjustified prices increases,” Ncube said.
“This measure has contributed to stability in the prices of basic commodities, hence, the suspension of duty, which expired on 16 November 2022, will not be extended. Government will, however, continue to monitor the prices of basic commodities, with a view to ensure responsible pricing and affordability, failure of which the suspension of duty will be reinstated.”
The Finance minister also increased value added tax to 15% from 14.5%, a development which is likely going to push prices of goods and services. He however said the impact on low-income households will be “mitigated by existing exemptions and zero-rating on basic goods and services.”
“Mr Speaker sir, whereas the Sadc regional standard Value Added Tax (VAT) rate averages 16%, Zimbabwe charges a comparatively lower rate of 14.5%. The VAT rate was reduced from 15% with effect from 1 January 2020, in order to support households during the peak period of the Covid-19 pandemic,” he said.
“Implementation of strict measures to fight the pandemic, complemented by the countrywide vaccine roll-out programme, has enabled Government to open up the economy to various activities. I, therefore, propose to reinstate the VAT rate to the previous rate of 15%, with effect from 1 January 2023.”
Official figures show that global inflation has quickened at a faster pace and more persistently than originally expected, rising from 4.7% in 2021 to 8.8% in 2022, the highest rate in advanced economies since 1982.
Experts say it is, however, expected to decelerate in 2023 and 2024 to 6.5% and 4.1%, respectively. The outlook points to faster disinflation in advanced economies than in emerging markets and developing economies.
Persistent and increasing inflationary pressures in 2022 have resulted in tighter monetary and fiscal policies for most countries, against the expansionary policies during the pandemic.