EXPERTS have warned that the 233,03% increase in vote appropriations for the current fiscal year, amounting to ZiG322,64 billion, will significantly exacerbate inflationary pressures on the economy.
The Blue Book, which outlines the proposed estimates of expenditure for the year ending December 31, 2025, details the Treasury’s proposed spending plans.
The budgeted expenditure of ZiG322,64 billion represents a sharp increase from the ZiG96,88 billion allocated for the 2024 fiscal year.
Adding to the fiscal strain is the Treasury’s anticipated revenue of ZiG270,3 billion, which is being eroded by shrinking sources of income, leaving limited options to fund the budget deficit.
Renowned economist Gift Mugano said Finance minister Mthuli Ncube was testing the market to determine his next move.
“That is not good because people are not dumb as well,” Mugano warned. “He is trying to avoid alarm. This is a huge jump. It tells you that things are not good. Even if you do not know inflation, such a jump means that your money has no value.”
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He said the country should not expect much from the budget as it was a moving budget.
“We are talking about ZiG322,63 billion, right? I can tell you, he will spend ZiG500 billion because of the disarray in terms of the fundamentals,” he said. “The current stability is an issue. Inflation is already shown in the budget; it becomes self-fulfilling. Food security is an issue this year; even though it is raining because of our preparedness, we were caught offside.”
Mugano warned that the government’s failure to pay suppliers was a “ticking time bomb”.
Imara Asset Management echoed these concerns, stressing that the long-term viability of Zimbabwe’s local currency depends on disciplined fiscal management.
Excessive government spending, Imara warned, undermines the currency’s stability.
Imara highlighted that while the Reserve Bank of Zimbabwe (RBZ) can try to control liquidity, the government’s continued reliance on overdraft facilities or the issuance of local ZiG bonds and US dollar-denominated Treasury Bills is likely to sustain inflationary pressures.
The asset manager also expressed concern that the recently enacted Finance Act grants the commissioner-general the power to shut down businesses that fail to meet their obligations to the Zimbabwe Revenue Authority (Zimra), a move that could be disastrous.
“It further looks like management could go to jail for failing to comply. An entrepreneur may now think twice about establishing a business in the formal sector,” it said.
“Meanwhile, a glance at the Zimra website reveals their motto: “We are here to serve”. The source of all these tax challenges is diminishing government inflows and expenditures that have been kept high.”
Imara noted that an overvalued and poorly-managed exchange rate has contributed to the growth of the informal sector, thereby reducing the tax base.
According to the RBZ, the informal sector’s annual turnover is estimated at US$14,2 billion, with a gross domestic product (GDP) valuation of US$8,6 billion.
“With limited room to grow the pie, it is only reasonable for the government to reduce their own expenses and properly stick to cash budgeting principles. That has not happened,” Imara said.
A leading economist, who asked not to be named, noted that crafting a budget with a volatile currency posed significant challenges due to the constantly changing value of money.
The exchange rate as of Wednesday was US$1:ZiG26,3.