Zimbabwe: Business responds to Finmin Ncube’s mid-term budget review

Zimbabwe's Finance Minister, Mthuli Ncube, recently presented the 2021 Mid-Term Budget and Economic Review, signaling strong economic growth in the country despite the challenges posed by the COVID-19 pandemic. The growth forecast for the year has been upgraded from 7.4% to 7.8%, indicating positive momentum in the economy. To delve deeper into Zimbabwe's economic situation, CNBC Africa spoke to Batanai Matsika, Head of Research at Morgan & Co. Matsika highlighted that the current economic growth in Zimbabwe is largely being driven by the agricultural sector. Favorable rainfall patterns have boosted agricultural output, propelling the overall economy forward. Additionally, the manufacturing sector is expected to experience growth this year, following a period of low capacity utilization in 2020 due to lockdown measures. Matsika emphasized that agriculture remains the primary driver of growth at present. A notable development in Zimbabwe's economic landscape has been the significant decrease in inflation. After a prolonged period of triple-digit inflation, the country has now brought inflation back to double digits, with a current figure of 56%. Matsika attributed this downward trend in inflation to several factors, including effective monetary policy interventions that have stabilized the parallel market rates. The improvement in foreign currency reserves, diaspora remittances, and gold receipts have also contributed to stabilizing inflation. Looking ahead, Zimbabwe is poised for lower inflation levels, with an end-of-year forecast ranging between 25% and 35%. In terms of public finance, Zimbabwe has recorded a budget surplus for the first six months of the year, with revenues exceeding expenditures. However, Matsika cautioned that while the surplus may indicate prudent financial management, it does not fully capture the economic realities on the ground. He noted that there are pressing needs in areas such as infrastructure development that require increased funding. The government's revenue sources include taxes such as the money transfer tax, VAT, personal income tax, and corporate tax. Despite the surplus, a significant portion of the budget is allocated to recurrent expenditures, particularly towards employment costs, leaving limited room for investment in critical areas like infrastructure. Looking forward, Zimbabwe faces risks associated with unplanned government expenditures as the country approaches the 2023 election year. Managing inflation levels and directing resources towards key sectors like infrastructure will be crucial for sustaining economic growth in the long term. With strategic fiscal policies and continued focus on revenue generation, Zimbabwe aims to navigate the economic challenges and capitalize on the current growth trajectory.