Widening budget deficit, unbridled spending could spell economic disaster

A WIDENING budget deficit, unbridled spending and uncertainties because of this year’s elections have economic analysts worried that the economy could hit further turbulence.


A date for elections is yet to be set but they are due between the tail-end of July and August 22, with a lot riding on the polls, analysts fear politicians are likely to concentrate on the ballots rather than the economy.

Confederation of Zimbabwe Industries president, Sifelani Jabangwe said business was worried that more resources will be channelled towards the elections, relegating the economy.

“The industry is worried that the forthcoming election will cost the industry by further worsening the foreign currency gridlock, as the election body will need to import raw material at a time the industry is grappling with forex shortages,” he said.

“There will be an increase in the importation of election material and this will also have an impact on the foreign currency.”

The manufacturing industry was saddled with a $600 million foreign payment backlog and the ongoing tobacco marketing season has failed to bring in the needed forex, which would have provided a respite for importers.

Jabangwe was optimistic that holding peaceful and credible elections will open the floodgates for investments.

And when that happens, his advice to political parties is to procure local material to preserve forex for basic requirements.

“We are hoping for peaceful elections as business, we hope credible elections will also help engagement with the outside partners,” he said.

“If the campaigning material are manufactured by local companies, this will boost the economy.

“If the government spends on importing the equipment for elections that will put pressure on foreign currency.

“We want also to advise political parties to spend locally on textile, fliers, etc.”

Labour and Economic Development Research Institute economist, Prosper Chitambara said election seasons and over spending were like Siamese twins, warning that an increment in civil servants’ salaries would widen the country’s budget deficit.

“If we have free and fair elections, the economy is likely to recover, but generally, an election year is not good for any economy,” he said.

“There is a tendency of over spending, uncertainties also affect the confidence in the economy.

“The government is increasing salaries for civil servants and this affects the budget deficit.”

In his 2018 budget statement, Finance Minister Patrick Chinamasa acknowledged that at the heart of the economy’s fundamental economic challenges is an unsustainable budget deficit, financed through the issuance of Treasury Bills and recourse to the overdraft with the Reserve Bank is untenable.

Reserve Bank of Zimbabwe governor, John Mangudya in his 2018 monetary policy statement, said the government has accrued a $1,2 billion overdraft with the central bank.

“There is also going to be pressure on forex and the cash situation because of the uncertainties presented by the elections,” Chitambara said.

“Remember, the financial sector is the life blood of any economy.”

Zimbabwe National Chamber of Commerce chief executive officer, Christopher Mugaga said elections present a precarious situation for potential investors.

“An election year in Zimbabwe tends to impact on investor sentiment both foreign and domestic,” he explained.

“What is happening is that business is taking a wait and see attitude.

“The intraparty violence is also causing uncertainties.

“So obviously risk profile is heightened even the negotiated deals will only take off after elections.

“In the short to medium term, the outlook is grim.”

Confederation of Retailers of Zimbabwe president, Denford Mutashu said the upcoming elections are expected to be the most peaceful, free and fair and business will respect the outcome.

“Unlike the previous elections, the campaigning has largely been open and unhindered; as such we do not expect shortages of basic and non-basic goods in the retail and wholesale sector

“Unlike the previous elections, the campaigning has largely been open and unhindered, as such we do not expect shortages of basic and non-basic goods in the retail and wholesale sector as long as the RBZ and the government ensure equitable, efficient and transparent distribution of limited available foreign currency through the financial services sector.

“When political campaigns are premised on the economy, it should follow that all should be done to protect business from the electioneering shocks by anchoring the campaigns on promotion of peace, tolerance, credibility and transformation,” he said.

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