eBusiness Weekly
Nelson Gahadza
The election momentum has become more pronounced with the announcement of election dates, but business believes the atmospheric anxiety has somehow slowed business transactions.
The country’s elections will be held on August 23, 2023, and nominations were conducted on Wednesday this week, officially marking the election season and race.
Fears now abound the period going into the election will result in election spending that may stimulate inflationary pressures if not managed properly.
In recent weeks, the economy has witnessed significant instability stemming from the exchange rate volatility, which resulted in the massive depreciation of the Zimbabwe Dollar against the US Dollar.
The country is estimated to have the highest inflation rate in the world, and prices have risen significantly.
According to the Old Mutual Investments report for March 2023, the Zimbabwe Electoral Commission (ZEC) reportedly submitted a $130 billion election budget.
The proposed budget is 71 percent above the $76 billion requirement presented in the 2023 national budget by the Minister of Finance and Economic Development Professor Mthuli Ncube.
OM said the ZEC also rolled out a mobile voter registration campaign that added 450,000 new registrants during the month ending March 31, 2023 that requires allowances and other consumables as they conduct their activities.
“Elections and monetary policy continue to dominate environmental themes, with both variables currently exhibiting fragile stability,” reads part of the report.
OM Investments said the baseline view suggests an inherent resilience to avert an implosion, ascribing a ‘more of the same’ near-term outlook.
“Overall, downside risks around elections and monetary policy pose a muted, yet real, threat to macroeconomic stability over the foreseeable outlook,” reads the report.
Investment analyst Enock Rukarwa, told Business Weekly that exchange rate volatility in the past few weeks can be attributed to a handful of factors, including but not limited to election hype and general speculation in the economy.
“Drawing from past experiences, inflationary expectations turn to drive foreign exchange rate rallies with limited traded volumes, especially at a time when the economy is nearing full dollarisation.
“Against the backdrop of an economy operating at around 75 percent parity in terms of USD transactions to ZimDollar transactions, an increased parity will further culminate into a self-fulfilling prophecy furthering increased USD penetration,” he said.
While businesses are praying for a peaceful and credible election, they believe if the economy slips further down, even peaceful elections will not result in a rapid economic turnaround.
Analysts also believe the prevailing local economic stability remains fragile, hinged on the government’s ability to continue to control the money supply as well as insulate the economy against global supply and inflation shocks.
Economist, Prosper Chitambara, said from past experiences and even from other countries, electoral-related spending has a destabilising effect on the macro-economy, but this differs from country to country.
“We expect that spending related to elections may result in inflationary pressures being generated,” he said, adding what is needed is the removal of inefficiencies in public spending.
Economist, Professor Gift Mugano, recently said that naturally, there is no restraint on election spending, and it emerges through a higher exchange rate and an inflation spiral.
“Already we can see the pattern of spending towards elections, and the election mode has already been defined,” he said.
Fitch Solutions, a global rating agency, said with inflation remaining sticky for longer and the risk of rapid growth in money supply in the run-up to general elections in 2023, it expects the Reserve Bank of Zimbabwe (RBZ) to raise the policy rate further, to 240 percent in 2023.
The RBZ has already raised the policy rate to 200 percent, triggering an outcry from industry, resulting in the interests rate being lowered to 140 percent, but fears are market indiscipline will likely see the rate being moved upwards again, according to analysts.
