Mthuli Ncube's economic projections unrealistic

ECONOMIC analysts have dismissed Finance minister Mthuli Ncube's inflation and economic growth forecasts as unrealistic as they did not factor in the rising global oil crisis and the country's galloping inflation rate.

Ncube has projected economic growth of 5,5% this year and inflation of up to 35% by year end. These targets were already in doubt at the time they were made, and now look even less likely as the cost of oil and other key imports soar due to the Russia-Ukraine war. But Ncube insists he is not making any downgrades, yet.

In a statement on Tuesday, the Zimbabwe Coalition on Debt and Development (Zimcodd) said Ncube's projections on inflation were not realistic.

"The reality on the ground stubbornly indicates that inflation is taking an upward trend, with credible estimates recording 66,1% in February from 60,6% in January," read the Zimcodd statement.

"The raging war between Russia and Ukraine has led to a spike in fuel prices across the world and Zimbabwe is not spared. The Zimbabwe Energy Regulatory Authority (Zera) slated petrol and diesel prices at US$1,67 and US$1,68 respectively thereby injecting inflation pressure to the ailing Zimdollar.

"The Zimdollar is already reeling from the effects of a negative exchange pass-through emanating from the parallel market premium over the official auction market rates. Fuel prices are factored in the pricing of goods and services and prices are bound to have all costs embedded in them."

Zimcodd urged the government to adopt a more stable currency as a way of enhancing economic stability.

"There are a number of dynamics contrary to the 25%-35% range anticipated by the authorities; adopting a more stable currency will certainly enhance macro-economic stability. A weak and volatile Zimbabwean dollar decreases overall service delivery capacity in the health and education sectors and accounts for unending industrial unrest in the same sectors as Zimdollar salaries fail to keep pace with an inflationary environment dominated by the US dollar," Zimcodd said.

It said United States dollar salaries would help boost workers' morale, improve service delivery and reduce poverty levels in the country.

"Effectively, dollarising will stabilise money supply and create conditions for increased economic productivity, but only if accompanied by complementary initiatives to restrain capital flight and illicit financial flows while at the same time strengthening domestic resource mobilisation and debt management.

Economist Prosper Chitambara said poor agricultural output was also likely to exert inflationary pressure on the economy.

"In terms of the exogenous factors, in particular, the geopolitical developments relating to the Russia-Ukraine crisis and the fact that we are expecting below normal agricultural seasons, there will be a lot of pressure on inflation which means that we may not be able to achieve the target of between 25% to 35% drops in inflation by year end.

"Inflation has actually increased from 60,61% in January to 66,1% in February 2022 and obviously that puts pressure on pricing and money supply tends to go up. Normally, before elections there is a lot of pressure on money supply growth and that could also be a downside risk which drives inflationary pressures."