1. 2019 Mid Term Budget Review
August 2019

2. 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

3. 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;

4. 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

5. 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

6. 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

7. Rebalancing the Economy ???

8. 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.

9. Structure of Deposits….short Term

10. 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%

11. 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……….

12. Current Account Improvement…..

13. Implications of the New Fiscal Budget
Macroeconomic Consistency Framework

14. Demand For Currency (1994 -2006)

15. Policy Scenario??? Real GDP M3 YoY% 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4
2019Q1
2019Q2
2019Q3
2019Q4
3.5%
8.0%
2020Q1
2020Q2
2020Q3
2020Q4
7.0%
10.0%

16. Current Scenario??? GDP M3 YOY% -4.4% 144.7% 3.3% 55.5% 2018Q4 19956
2019Q1
2019Q2
2019Q3
2019Q4
-4.4%
144.7%
2020Q1
2020Q2
2020Q3
2020Q4
3.3%
55.5%

17. Velocity of Circulation

18. Nominal GDP and Money NGDP 70 245 448.00 Velocity 2.2 2.5 2.85 M3

19. Inflation Outlook (Treasury)

20. Implications of the New Fiscal Budget

21. Implications of the Mid Term Fiscal Budget

22. SIYABONGA. TATENDA.THANK YOU

23. I thank you