2019 Mid Term Budget Review August 2019

PRESENTATION OUTLINE Highlights of the Mid Term Budget Review Key Issues from the Mid Term Fiscal Budget Implications of the Fiscal Budget: Money Supply Exchange Rate and Inflation Conclusion

Highlights of the Mid Term Budget Review The Mid Term Budget Review proposed additional funding to cover the following: - Stimulation of production, targeting agriculture, industry and other productive sectors; Food security including: - Grain procurement to mitigate the effect of drought conditions; Funding for the 2019/20 Summer Cropping Programme. Welfare of civil servants and pensioners; Social services delivery and social protection; Infrastructure and utilities; Constitutional Funding including transfers (Provincial councils & Local authorities; Supporting structural and governance reforms; Support for Government operations;

Highlights of the Mid Term Budget Review The Mid-term budget has provided for the following additional funding: Agriculture - $3.2 billion Social Protection - $1 billion Health - $0.352 billion Education - $0.106 billion Service Providers - $0.120 billion Transport projects - $0.528 billion Water and Sanitation - $0.168 billion Institutional Housing - $0.222 billion

Highlights of the Mid Term Budget Review The tax free threshold has been raised from the current $350 to $700 to cushion employees against rising inflation. Increase in Government Fees, Levies and Charges, E.g. electricity tariffs, motor vehicle licenses, tolling fees. Taxation of Direct Fuel Imports - levy excise duty on Direct Fuel Imports in foreign currency. Review the royalty rate on gold produced by small scale miners from the current rate of 1% to 2% of the gross fair market value Review of the IMTT threshold from rtgs$10 to rtgs$20

Highlights of the Mid Term Budget Review Original Budget Supp. Budget Rev. Budget Revenue and grants 6,199 7,861 14,060 Expenditure and net lending 7,765 10,854 18,620 Current expenditure 5,728 5,824 11,552 Employment costs 4,050 1,506 5,556 Interest payments 351 160 511 Foreign 24 206 230 Domestic 327 - 46 281 Goods & services 719 3,740 4,459 Current transfers 608 418 1,026 Capital Expenditure (& net lending) 2,037 5,030 7,068 Overall balance (commitment basis) -1,566 - 2,993 -4,560

Rebalancing the Economy ???

Key Issues from the Mid Term Budget Review Government will set aside $1.67 billion towards drought mitigation and Stabilizing Food Security. The budget has also provided for increases in costs (electricity, toll gates, motor vehicle licenses etc.)…….these will fuel domestic price escalations, with further attrition on Aggregate Demand…. Information blackout on YOY inflation, (ZimStat will not publish annual inflation figures)……will fuel speculation and inflation expectations. Financing of the $4.5 billion budget deficit There is need to interrogate the financing of the B/D, Capacity of the Banking sector Capacity of the non Bank sector Dangers of new money creation and inflationary financing.

Structure of Deposits….short Term

Implications of the New Fiscal Budget Implications on Money Supply growth The Table below shows the possible Budget Implications M3 ($billion) 2018 2019 YoY growth Jan 7.84 9.86 25.77% Feb 7.83 10.39 32.69% Mar 7.99 10.63 33.04% April 8.12 11.35 39.78% May 8.56 13.01 51.99% June 9.14 14.2 55.36% Sep 10.12 18.6 83.79% Dec 10.01 24.5 144.76%

Implications of the New Fiscal Budget Implications on the Exchange Rate and Inflation The above projected money supply growth will put pressure on the interbank exchange rate, Exchange rate adjustment will increase RBZ exchange losses on the net liabilities position, increasing OIN. If Monetary Authorities maintain a firm hand on the Interbank rate, the parallel market premium will escalate, driving all prices in the economy Disinflation will be difficult to achieve in the near term……….

Current Account Improvement…..

Implications of the New Fiscal Budget Macroeconomic Consistency Framework

Demand For Currency (1994 -2006)

Policy Scenario??? Real GDP M3 YoY% 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 19956.10 10223220 2019Q1 20120.14 10427684 2019Q2 20291.26 10632148 2019Q3 20466.26 10836612 2019Q4 20654.46 11041077.6   3.5% 8.0% 2020Q1 20994.23 11317104.54 2020Q2 21349.23 11593131.48 2020Q3 21714.23 11869158.42 2020Q4 22100.27 12145185.36 7.0% 10.0%

Current Scenario??? GDP M3 YOY% -4.4% 144.7% 3.3% 55.5% 2018Q4 19956 10 223 220 2019Q1 19749.65 10 632 148 2019Q2 19534.53 14 222 148 2019Q3 19310.62 18 636 612 2019Q4 19077.94 24 511 077.6 -4.4% 144.7% 2020Q1 19225.89 27707934.9 2020Q2 19380.13 31040828.67 2020Q3 19540.67 34509758.93 2020Q4 19707.51 38114725.67 3.3% 55.5%

Velocity of Circulation

Nominal GDP and Money NGDP 70 245 448.00 Velocity 2.2 2.5 2.85 M3 31 929 749.09 28 098 179.20 24 647 525.61

Inflation Outlook (Treasury)

Implications of the New Fiscal Budget

Implications of the Mid Term Fiscal Budget

SIYABONGA. TATENDA.THANK YOU

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