Mthuli Ncube declares war on inflation

Mthuli Ncube declares war on inflation
Published: 21 February 2019 (202 Views)
Finance and Economic Development Minister Professor Mthuli Ncube says Government will continue to implement appropriate fiscal measures to bring inflation down to single-digit levels by year end.

Inflation, which erodes the value of currency, has a deleterious effect on the economy as it hinders pricing mechanisms, capital formation, stimulates speculative activities and hoarding and leads to misallocation of productive resources, something that has previously thrown Zimbabwe into turmoil. But, the Treasury chief says Zimbabwe will institute measures to forestall the slide, after months of rising inflation. The measures include reducing public expenditure and narrowing the trade deficit, which the Zimbabwe National Statistics Agency (Zimstats) said stood at $2,4 billion as at December 31, 2018.

Historically, inflation has sky-rocketed to record hyper-inflationary levels in Zimbabwe, attributable to fiscal indiscipline and a high trade deficit as imports outstripped export receipts.

Additionally, wasteful Government expenditure in particular created excess money supply, which triggered high demand for US dollars to pay for imports and store value, as inflation crept up. In his weekly column, Minister Ncube said the fiscal consolidation measures were already bearing fruit, in the process helping balance up the budget. The month-on-month inflation rate showed signs of a sustained decline last year, an indication of the positive effect of the measures being implemented by Government.

The minister said month-on-month inflation slowed down to 9,2 percent and 9,0 percent in November and December 2018, respectively, slightly increasing to 10,75 percent in January 2019. "The policies of restructuring and reforming our economy are beginning to be felt with the month-on-month inflation expected to maintain downward trend from March 2019, a crucial marker of our economic stability and a direct result of these reforms.

"Things, therefore, are getting better. It is vital that economic agents, investors, consumers, and indeed policy makers focus their attention on month-on-month inflation developments rather than year-on-year," said Minister Ncube.

Although year-on-year inflation has been on an upward trend since October 2018, reaching 56,9 percent by January 2019, Minister Ncube believes correct implementation of fiscal measures would reduce it significantly before year end.

The Treasury chief, however, acknowledged that the high inflation had a knock on effect on consumer spending as incomes were being eroded by the rising cost of goods and services. He said this was downplaying their standards of living, but stressed that sustained implementation of the ongoing fiscal measures would bring a relief in the not so distant future.

Said Minister Ncube: "It has been eating away at our savings and our pensions, risking greater poverty. With inflation, long-term planning for companies becomes impossible as prices keep changing.

"In the same vein, fiscal forecasts become distorted in an inflationary environment. This is why as Minister of Finance; I have vowed to get inflation under control immediately. And we are already seeing results."

Some of the fiscal measures being implemented include the 2 percent tax on electronic transactions, separation of nostro and RTGS accounts and reduced public expenditure. Income generated from the intermediated money transfer tax will be used to improve social services such as building schools, roads and improving civil servants' wages. Minister Ncube emphasized the need for correct implementation of the fiscal and other economic reform measures to achieve the intended objectives of improving the state of the economy.

The finance minister also said that the implementation of the TSP was also expected to see Zimbabwe grow into an upper middle class economy by 2030.

- The herald

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