The 2022 Mid-Term Budget and Economic Review came at a time when the economy was grappling from runaway inflation and black market exchange rates. The foreign exchange market has serious distortions and structural and institutional failures all of which indicate a seriously bleak future especially when it comes to price and foreign exchange stability.
Adding to this, there is unprecedented pressure from civil servants demanding a review of their wages and salaries largely because they need to regain their purchasing power and earn an adequate income in light of the rising cost of living. The big expectations were the restoration of confidence and the implementation of a price and foreign exchange stabilisation strategy.
During the Review, the Minister, Mthuli Ncube broadly admitted the impact of the current inflation and exchange instability by reviewing the budget by nearly 100% for both revenue and expenditure.
Another expected outcome of the Review was to determine government’s strategy for arresting the budget deficit and dealing with the debt burden, but instead, the Review failed to address these critical issues both in the short and long run. An expansionary budget approach purely motivated by inflationary collections cannot inspire sustainable development.
There is clear disregard of the major elements in the market, namely the currency question. The economy has self dollarised and institutions have debased their budgets to USD using the official exchange rate resulting in overpriced services in USD. The minister was expected to make policy announcements about how government will address the chaos in the foreign exchange market that is rapidly destabilising the economy.
A possible solution would have been to shift from ZWL as the base currency to USD so that the USD becomes the reporting currency. ZWL would then form part of the basket of currencies over a period of 3 to 5 years. This would be done to restore stability, inspire growth and increase local production. It will bring stability and eliminate distortions and should be followed up with a clear transitional strategy to our own currency.
Furthermore, the preference by the Minister, Mthuli Ncube to suppress the wage bill and continue paying paltry salaries will only perpetuate our economic problems as realistically the burden can't be arrested by starving our nation’s workers. A wage led growth would have been a better policy option. Increasing wages leads to increased expenditure and investment, which in turn creates demand and results in economic growth. A key aspect of addressing wages is the intentional restoration of value and addressing the need to adequately compensate the workforce.
The introduction of gold coins purely as a store of value doesn't in any way drive the performance of the economy or bring stability to the economy. The fact that gold coins are being purchased at a value that is almost 50% less in ZWL to USD using parallel markets rates creates a big source of arbitrage and thuggery. This is clearly a pyramid scheme that will crash at the expense of those who are putting money into it. It is an elitist market, indicating a tacit admission that the ZWL is only a transactional currency, secondary to Forex. Having set the path for dollarisation using SI118A the minister was supposed to go for the final lap announcing dollarisation or change of base currency.
No incentives were preferred by the Minister Mthuli Ncube to promote domestic production. The review doesn't provide an inspiration for expansion of domestic growth. The minister was very ambitious on the revised growth projections that contradict with inflation projections and balance of payment performance.
The 2022 Mid-Term Budget and Economic Review shows no consideration for the ordinary citizen. We have serious challenges like unemployment, shrinking domestic growth and deteriorating social service delivery. This was all supposed to be addressed and well articulated in the Review. Instead, the Review acknowledges the devastating effects of Covid 19 and the current global crisis but fails to profer solutions to mitigate the shocks and protect the ordinary citizens of Zimbabwe.