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"Anticipated Increased Govt Expenditure May Threaten Inflation Outlook" - FBC

FBC Holdings Limited (FBC) says the anticipated increased government expenditure for 2023 may threaten Zimbabwe’s inflation outlook.

For 2023, the government has projected that the month-on-month inflation will be between 1% and 3% while annual inflation is expected to drop to two digits.

FBC says the ZW$4.5 trillion (US$6.95 billion) 2023 National Budget announced by Finance minister Mthuli Ncube will likely worsen the inflation in Zimbabwe, according to NewsDay

FBC securities subsidiary, FBC Securities Private Limited (FSPL) wrote to its clients in its post-2023 National Budget analysis:

Month-on-month inflation target range has been set at between 1% and 3%. Global inflation shocks resulting from geopolitical tensions, rising food and energy prices as well as supply chain disruptions present downside risks to the inflation outlook.

Ahead of the 2023 harmonised elections and higher spending to fund the 2022/23 farming season, there is likely to be pressure on money supply, which if not carefully managed may trigger inflationary pressures. Government has, however, reiterated intentions to maintain its hawkish monetary stance in a bid to keep inflation under control.

The Minister of Finance and Economic Development, Mthuli Ncube, presented the 2023 National Budget under the theme Accelerating Economic Transformation. The presentation comes on the backdrop of elevated inflation and currency devaluation that prompted tightening of the central bank’s monetary policy.

Annual inflation as at end of October was 268,8% against an initial target of 25%-35%, later revised to 52-58%. For 2023, government has set a month-on-month target of between 1% and 3% and annual inflation to drop to two digits. Money supply pressure from anticipated increased government expenditure may threaten this inflation outlook, if not carefully managed.

Unless carefully managed, there is likely to be pressure on money supply growth in the coming months owing to government increased expenditure ahead of the 2023 harmonised elections and higher spending to fund the 2022/23 farming season.

The budget is the highest expenditure requirement by the government ever in decades and has a funding deficit of nearly ZW$600 billion that Ncube said will be met by:

i). the issuance of Treasury Bills worth $82.2 billion,

ii). Victoria Falls Exchange Bonds ($95.2 billion) and

iii). an expected loan of US$400 million from the African Export-Import Bank.

iv) .changes in bank balances of ZW$10 billion 

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