daniel chigunwe
Tapiwanashe Mangwiro
The Zimbabwean Government is imposing strict measures to address a potentially unsettling end-of-year cash crunch, including curtailing foreign trips and banning workshops by state agencies.
Finance, Economic Development and Investment Promotion Secretary, George Guvamatanga, announced a 50 percent reduction in fuel allocations for all ministries and Government departments.
In a letter on November 13 to all accounting officers, Guvamatanga highlighted a “substantial imbalance” between Government revenue and expenditure.
“As you may be aware, the local currency unit, ZiG, recently depreciated by 43 percent against the United States dollar, resulting in a substantial mismatch between revenue inflows, collected in some cases with a one-month lag and local currency expenditures that immediately adjusted to the new exchange rate, in the process severely constraining fiscal space for the last quarter of 2024,” Guvamatanga explained.
The Government plans to prioritise paying civil servant bonuses, providing food aid, and supporting farmers through input programmes. However, non-wage support for ministries and departments will face significant cuts.
Economist, Enoch Rukarwa, believes contractionary measures by the Government to anchor inflationary pressures and exchange rate volatility are encouraging but they are predominantly short term and lacks sustainability fundamentals.
“Whilst such measures do present Government commitment in combating inflation and exchange rate challenges, Zimbabwean inflation model is largely driven by structural issues, supply side shock and currency instability.
“In the grand scheme of things, a nuanced approach which addresses structural reforms, investment in productive sectors and confidence restoration measures, will be more effective as opposed to contracting the economy for a given period of time,” he said.
Guvamatanga added that treasury approval for foreign trips would only be granted if the trips are funded independently of state resources. Additionally, he mandated the “deferment of all local workshops, with the exception of those granted prior approval by the treasury.”
Fuel allocations will also be rationalised, with a 50 percent reduction in operational requirements.
These measures are aimed at maintaining critical obligations while mitigating the financial pressures resulting from the currency depreciation on September 27 and limited fiscal space.
Analyst, Tafara Mtutu, is of the view that Government and the monetary policy makers do not want a situation where they will have to devalue the currency again shortly after doing that devaluation at the end of September.
“For a while, they will try and be responsible, and right now, with those civil servants’ bonuses coming up, I think they really need to make sure that by the time they pay those monies, the balances actually still make sense and that they will not have to be forced to print more money to fund that payment,” Mtutu said.
Analyst, Malone Gwadu, however, believes the letter by Guvamatanga aims to really motivate and direct ministers, departments to accept the ZiG as a currency of settlement.
“In various Government departments the gold backed currency should be the currency of choice because with the advent of the seemingly rejecting market realities, Government needs to step up in terms of accepting the ZiG.
“I think it is a noble initiative and it needs to be capacitated, obviously, with relevant laws to operationalise it,” Gwadu added.
The consensus belief is that Government is going to cut on the expenditure that is unnecessary, as already stipulated in that letter.
“In a nutshell, it is going to be tight. They are going to prioritise the civil servants’ salaries, and they are also going to complete the payments that are outstanding to contractors that did the infrastructure works prior to the SADC summit in August.”
When the year starts, the economy will look very positive, the economic outlook will also look positive, so, Government will have to continue tightening fiscal spending and support the tight or restrictive monetary policy.
“Considering that the additional output and production that is going to come out of the positive outlook could spur some inflationary effects, both in the price of goods and services, but that could also bring upward pressures on the parallel market rate,” Mtutu said.
“So, I think they will be forced to tighten things to make sure that whatever depreciation happens, both the official and parallel market rate will be contained and will be small enough to not necessitate another devaluation of the ZiG.”
Bongani Ndlovu