BUDGET WATCHDOG WARNS OF DOUBLE DIGIT INFLATION | Zimbabweans should brace for more price increases, with inflation likely to touch two- digit levels, the Parliamentary Budget Office (PBO) has warned.
In its 2017 first half budget performance and outlook report, PBO said inflation, which gained 0,64 percentage points to 0,78 percent September, was likely to further strain public confidence in the country’s banking sector.
The country is already grappling with foreign currency shortages, which have hampered the import of critical raw materials. This has resulted in high premiums being charged on hard currency, pushing inflation higher.
“It is clearly evident that the country is headed for two-digit inflation by end of year 2018. Although this is valuable in terms of reduction in the real value of domestic debt, it reduces the value of savings and bank balances in real time gross settlement dollars thus bringing back old memories of hyperinflation,” PBO said.
Zimbabwe’s inflation rate averaged 0,85 percent from 2009 until 2017, reaching an all-time high of 5,30 percent in May of 2010 and a record low of -7,50 percent in December 2009.
After more than two years of deflation, inflation broke into positive territory at the beginning of the year after government introduced a local currency called bond notes.
Official data shows Zimbabwe recorded price increases in rice, breakfast cereals, macaroni and noodles in all the provinces, on the back of cash and foreign exchange shortages during the month of September.
Increases were also observed in cooking oil in all the provinces, while price increases in beef were also observed in Harare, Bulawayo, Mashonaland West, Matabeleland North, Matabeleland South and Mashonaland West Provinces.
However, PBO said a good agricultural season would help subdue food inflation.
“Energy inflation is dependent on government ability to provide forex for fuel imports,” PBO said.
While the World Bank predicts the inflation rate to close at 3,2 percent inflation for 2017, rising to 9,6 percent in 2018, the International Monetary Fund (IMF) has forecast that inflation would end the year at seven percent.
PBO also noted that government had outstanding debts to local suppliers of over $1,5 billion at the end of August 2017. Actual expenditure outturn in the first half of 2017 stood at $2,6 billion against a target of $1,9 billion.
While a budget deficit of $535 million was recorded and financed largely through domestic borrowing, PBO said this deficit was understated.
Noting that policy inconsistency with regards to civil service wage bill rationalisation measures agreed at a Cabinet meeting of June 13, 2017 remained a problem, PBO said reduction to employment costs would also remain a dream.
“This casts doubt on the possibility of Treasury intentions to reduce employment costs to below 70 percent of the wage bill by year end…
“It is therefore highly unlikely that measures to cut spending will see the light of day, especially as the country gears up for the harmonised elections next year,” PBO said.