Price blitz hit government’s planned infrastructure projects

HARARE- The government has reported that some of its budgeted projects are behind schedule largely due to escalating prices in the economy.

In a post cabinet briefing this Tuesday, the Minister of Information and Publicity revealed that at least 22 capital intensive projects running into several millions of dollars, largely in infrastructure, are running behind schedule.

Government reported that 14 projects out of the 100 short term targeted projects as budgeted for in the 2019 Budget, which is about 16% of total, were ahead of target while 54 projects, which is about 60% were on target. The remaining 22, which is 24% were behind schedule.

The projects which are behind target were affected by price escalations which rendered the initially allocated funds inadequate as market rates of forex spiked. although the budget had been set in US dollars, the real targeted revenue collections would have been in RTGS$.

In his initial 2019 budget, the Minister of Finance Prof Mthuli Ncube had set aside a total of $8 billion as expenditure for the full year.

Capital expenditure was targeted at 18% of total budget. Of the $8 billion, $6.1 billion was to be raised through taxes and the difference through borrowings and grants.

Buttressing his budget, the minister went on to unravel a $2 billion infrastructure development program to be undertaken in 2019.

Much of the projects were in road and dam infrastructure and these were expected to cushion economic growth in a period where other sectors of the economy would suffer due to low aggregate demand.

Government which is responsible for policy formulation had however not factored inflation and exchange rate dynamics which have since stunned the economy and forced a premature policy shift.

In February 2019, government went on to partially liberalise the exchange rate between the USD and the RTGS$ which unleashed further inflation due to exchange rate losses.

However inflation had already risen sharply since October 2018 which widened the gap between USD prices and the RTGS$ denominated prices in the market.

These market excesses discouraged exports and thus constrained forex receipts. In turn imports deficits of key consumables largely remained in short supply, in turn threatening industry viability as well as economic growth resulting in government giving up the 1:1 exchange rate.

Fast forward to June, government now intends to revise its budget upwards to carter for inflationary pressure and is due to revise its budget in July. Expenditure for the year is now targeted at $12 billion up from $8 billion while income collected is expected to increase to $9 billion from the initial target of $5.6 billion.

This revision will mark an adjustment to civil service wages and targeted commitments towards infrastructure projects part of which were highlighted above.

What is of concern is the resultant budget deficit, which will come in at a wider level relative to last year given the sharper increase in expenditure ahead of revenue. Government has however played down the impact citing a lowering deficit to GDP level which it expects to come in at 4%.

Regardless of the varying arguments around the computation of the revised GDP levels, the resultant deficit of circa $3 billion, which already is on the conservative end, will likely impact money supply through private sector borrowings.

EQUITY AXIS NEWS

Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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