Economist Mugano Calls For Frank Discussion On Zimbabwe's Inflation, Exchange Rate, Currency

Economist Professor Gift Mugano has called for a frank discussion on the accuracy of Zimbabwe’s inflation rates, the exchange rate system, the currency in which the country budgets, and the constraints on production.

He made the call on the realisation that the 2024 budget is likely to be underfunded by a large amount, with a gap of ZWL$62.2 trillion. He said the line ministries and departments submitted a budget of ZWL$110 trillion, but the proposed budget is only ZWL$47 trillion. This raises questions about why the budget is so high and how it will affect the ministries and the economy. He said on X:

Last week during the budget consultations we heard estimated budget outlay for the year 2024 of around ZWL$47 trillion which is already well above the ZWL$33 trillion target set by the Honorable Minister Mthuli Ncube. In view of the foregoing observations, the following questions are pertinent:

1. What is driving up our budget by more than 1000% when the 2024 growth outlook is expected to be around 3.5% while annual inflation has dropped to 17.3% as of October 2023 according to Zimstat?

2. What will be exchange rate in 2024 when these trillions are offloaded into the market?

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3. Over the last 5 years @MthuliNcube exceeded his set budget as follows:

– He set aside $8.1 billion for the 2019 budget and overspend by $6.9 billion

– He set aside $63 billion for the 2020 fiscal year and overspent by $100.2 billion

-He set aside $427 billion for the 2021 fiscal year and exceeded his budget by $200 billion.

– He set aside $927 billion for the 2022 fiscal year but went on to overspend by exactly $1.112 trillion.

– He set aside $4.5 trillion for the 2023 fiscal year but by his own admission as shown on page 10 of the 2024 budget strategy paper he is anticipating to spend exactly $25.6 trillion by December 2023, that is, + 5 times the projected budget!! In view of the foregoing observations, what is likely to be the actual budget outlay for the 2024 fiscal year? $200 trillion?

4. As these numbers keep on changing, what happens to ZWL loans in terms of exposure for the banks? Here my question is grounded on the theory of hyperinflation and its impact on loans where the debtor becomes the winner and creditors as losers. Undoubtedly, the above facts shows that we now undertaking budgeting as ceremonial. The role of the budget in stimulating the economy has severely diminished. We need to think without a box (not outside the box because as long as the box is still around us it still remains a serious constraint to us). I suggest that we carefully and seriously consider the questions I posed above and have genuine reflection of our policy positions.

Mugano also said there is a need for an honest discussion on whether the reported annual inflation rate of 17.3% is accurate or whether are we deceiving ourselves. He also asked that if it’s not accurate, why are we lying to ourselves? He further asked the following questions:

Should we continue to maintain command exchange rate as well as the auction system – why can’t we move to market-determined exchange rate and disband the auction system?

Should we have our budget in ZWL or USD? What is the cost-benefit analysis or rationale for each option?

On production – knowing that the strength of the country’s currency, what are the binding constraints and blockages impeding production and what are possible remedies? 

Government critics and economic analysts including American Professor Steve Hanke, have often argued that the Zimbabwean government understates inflation figures for political reasons, to control fiscal implications, limit cost of living adjustments, and maintain a positive international reputation. However, this has the effect of eroding trust, distorting decision-making, and hindering effective economic planning.

The Zimbabwe dollar, which came back into use in 2019 after not being used for ten years, has been losing its value quickly compared to other currencies, especially the US dollar. The government has tried different actions to make it more stable, but these measures haven’t been successful.

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