Import duty review a risk to inflation: Expert

inflation rate in the long run.
During the presentation of the Mid-Term Fiscal Policy Review Finance Minister Tendai Biti re-introduced duty on maize meal and cooking oil, and simultaneously removed several commodities including blankets, shoes, refrigerators and stoves from the travellers’ rebate as a mechanism to boost local production capacities.
It is anticipated that the measure may lead to steady and improved capacity in some food and clothing sub-sectors, currently operating below 50 percent capacity. However, there are chances the move could have repercussions at macro-economic level.
ZB Financial Holdings group economist Mr Joseph Mverecha contends that although the development should be applauded in respect of the manufacturing sector, there could be broader implications.
“The objective is to provide respite to the local industry that has struggled to compete with low priced food imports from the Southern African Development Community region and beyond.
“The measure, however, has downside risks to inflation and may occasion further upward price pressures in the economy.
“By how much prices will eventually rise may be partly mitigated by envisaged capacity recovery in the economy and broader issues of productivity gains.
“The Government has to be concerned about possible inflation spikes that may generate adverse expectations, at a time when the economy has no monetary policy,” he said.
Mr Mverecha conjectured that industrial capacity recovery was also a function of other critical factors, including availability of power and affordable credit.
Zimbabwe is targeting an inflation rate of around less than 5 percent by year end, anchored on continued use of multiple currencies and increasing production capacities of the industries.
However, the latest decision on import duties has the potential to further impel the country’s inflation rate, which already faces inflationary pressures from movement in the value of the South African rand.
This is largely because that market is the largest supplier of raw materials and commodities to this country, in addition to the fact that Zimbabwe’s multi-currency system is essentially pinned on use of the United States dollar.
During the first half of the year, Zimbabwe’s year-on-year inflation declined from 3,5 percent in January to 3 percent in February.
In March and April inflation dropped to 2,7 percent before further decelerating to 2,5 percent in May.
However, inflation marginally peaked at 2,9 percent last month attributable to price adjustments in rentals, medical products, domestic services and alcoholic beverages. This inflation performance is in line with the Sadc and Comesa inflation targets of single-digit levels, and Zimbabwe currently has the lowest inflation rate among both regions.
Excluding the possible effects of the latest review on import duty, economists have generally projected that inflation will remain below 5 percent, assuming limited impact from exogenous shocks such as fuel prices, rand appreciation and containment of domestic costs.