HomePoliticsFiscal policy puts average inflation of above 1 000%

Fiscal policy puts average inflation of above 1 000%

FINANCE minister Herbert Murerwa’s fiscal policy statement issued to support government expenditure with a $327,2 trillion supplementary budget will see government missing its inflation targets, Phoebe Goremusandu, a senior market analyst with Old Mutual

Asset Management said yesterday.

“The revised expenditure figures given by the minister imply that government will experience average inflation of about 1400% in 2006,” she said in a statement.

“This inflation expectation is mostly in line with market expectations and is way above the original inflation estimate of around 300% implied by the minister when he gave his budget speech in December 2005.”

She said it was also worth noting that both the expenditure and revenue supplementary estimates were double the original estimates thereby reinforcing the inflationary message. On the budget deficit, Goremusandu said; “The revised figures given by Murerwa implied a fiscal deficit of around $200 trillion which widens the budget deficit to around 24% of GDP, against an earlier estimate of 4,6%.

“In the absence of other initiatives, this deficit will maintain the inflationary expectations at the current high levels.”

The minister, however, allocated $327,2 trillion instead of the $614 trillion that ministries had requested. He said the tax relief given by the minister that raised the tax-free income from $7 million to $20 million was welcome but was out of line with the Central Statistical Office estimates that put the poverty datum line for June 2006 at $68m.

“The revision of the tax-free band was about 186%, which is much softer than the movement of prices in the economy in 2006,” Goremusandu said.

In his statement, the minister decried the high cost of government debt arising out of the expensive short-term government debt.

“There is therefore need to improve the link between fiscal and monetary policy and the two have to be co-enablers,” said Goremusandu.

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