Budget surplus to anchor stability

20 Jun, 2021 - 00:06 0 Views
Budget surplus to anchor stability Dr Mangudya

The Sunday Mail

Business Reporter

Finance and Economic Development Minister Professor Mthuli Ncube announced last week that Zimbabwe posted a $9,8 billion budget surplus in the first three months of the year.

In 2018, when the country realised its first budget surplus, the Treasury chief indicated that it demonstrated the new administration’s commitment to fiscal consolidation and budgetary discipline.

A balanced budget, he said, was critical in maintaining the value of the Zimbabwe dollar.

The Government has continued with its unrelenting grip on fiscal consolidation to ensure stability and restore market confidence.

Prof Ncube said the marked drop in the annual inflation rate to 240,6 percent by March 2021, from a post-dollarisation high of 837,5 percent in July 2020, showed the success of ongoing stabilisation efforts.

Reserve Bank of Zimbabwe governor Dr John Mangudya told The Sunday Mail Business the budget surplus dovetails with the bank’s policy of tight liquidity control.

The surplus means Treasury is unlikely to seek an overdraft from the central bank.

An expansionary monetary policy (creation of new money), Dr Mangudya said, was not consistent with efforts to rein in inflation under a tight monetary policy framework, as well as maintaining exchange rate stability.

“In Zimbabwe we use a cash budget, so from the cash budget, there has been a surplus. It is good for the country.

“They (Treasury) are not borrowing from the Reserve Bank to fund their expenditure,” he said.

“The reason why a (budget) deficit is always bad is that it creates more money. To us it is very good.

“The Reserve Bank is a banker to Government, it is a banker to all the banks in the country; when they are in deficit, we give them money.

“But by doing so, we are creating money (liquidity). So, if there is no (huge) deficit, it means we (RBZ) are not creating any money. It is good for the whole economy . . .”

The central bank expects July inflation to be below 3 percent owing to tight monetary policy, low food inflation due to bumper harvest and the success of cash budgeting.

Annual inflation is forecast to fall to between 102 percent and 103 percent, before making a significant dip to around 55 percent in July.

Dr Mangudya said the decline was likely to be tempered by pressure from non-food items, especially following the increase in rates such as electricity.

He is, however, convinced the rise will be counterbalanced by the stability in food prices.

A tight monetary and fiscal policy stance, controlled market liquidity by RBZ and fiscal consolidation and discipline on the part of Treasury have helped restore stability.

Annual inflation, which hit 837 percent in July 2020 amid exchange rate volatility, had dropped to 162 percent by May 2021, while the exchange rate has hovered around $83 to $84 against the US dollar since September 2020.

A more stable environment has allowed robust economic activity to take place, with both Minister Ncube and Dr Mangudya confident the economy will this year achieve the targeted 7,4 percent growth.

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