‘Zim inflation to hit 400% by Q1 2023’

ZIMBABWE’S annual inflation may increase to 400% during the first quarter of 2023, as public spending rises due to election related spending, a leading economist said this week, predicting a gloomy outlook.

Gift Mugano, executive director at Africa Economic Development Strategies, also told businessdigest in Victoria Falls that lack of confidence in the Zimbabwe dollar would continue haunting the economy.

He said money supply growth was likely to take an upward trajectory as spending rises, frustrating growth and pushing inflation up.

Although Zimbabwe’s annual inflation rate dropped to 268,8% in October, down from 280,4% in the previous month, several economists have warned that the rate may rise again the country gears for the upcoming polls.

Mugano said government must endorse the Zimbabwe dollar through allowing the payment of taxes in the local currency.

Most Zimbabweans buy foreign currency on the black market in exchange of the Zimbabwe dollar to store value.

“If government fails to make a statement (soon), by the first quarter of next year, we will be hitting 400% annual inflation and the exchange rate will be depreciating to US$1:ZW$1 500,” Mugano said.

However, next week, Finance minister Mthuli Ncube will present the 2023 national budget, where he is expected to lay out his plan for next year.

“The drivers (of inflation) will be money supply and lack of confidence in the Zimbabwe dollar. The other driver of inflation will be election orientated expenditure, particularly on agriculture and rural development where, government is looking for eight areas of intervention. There is a positive correlation between the exchange rate deprecation and spending on agricultural activities. You have seen that since the rain season started the exchange rate has been going upwards. But remember that we are having capital flight,” Mugano said.

Of late the black market exchange rate has been creeping towards US$1:ZW$900.

Before the sudden depreciation two weeks ago, the exchange rate on the black market had been stagnant at US$1:ZW$750 since August.

This was the period when the government halted payment to suppliers for allegedly inflaming the inflationary fire by increasing prices and dabbling in black market activities.

During the same period, the Reserve Bank of Zimbabwe released about ZW$3 billion worth of gold coins to mop up excess liquidity and keep inflation in check.

On Monday, First Capital Bank said the central bank’s action had sucked ZW$9 billion out of the market, helping authorities fight inflation and money supply growth.