Severe drought to challenge Treasury, RBZ monetary resolve

10 May, 2024 - 00:05 0 Views
Severe drought to challenge Treasury, RBZ monetary resolve Effects of drought

eBusiness Weekly

Tapiwanashe Mangwiro

Zimbabwe, grappling with the most severe drought in four decades, faces a daunting challenge as it forecast to harvest a mere fraction of its maize production target and experts say this will test the authorities’ resolve not to print money.

According to recent reports from the Ministry of Lands, Agriculture, Fisheries, Water and Rural Development the country anticipates harvesting only 634,669 tonnes of maize, marking a staggering 72 percent drop from the previous season’s yield.

This shortfall comes at a time when Zimbabwe requires 2,2 million tonnes of maize annually to meet both human and livestock consumption needs, painting a grim picture of food security.

Such a dire situation stems from consecutive years of poor harvests, with the 2021/22 season’s maize production plummeting to 1,56 million tonnes, a sharp 43 percent decline from the previous season’s multi-year record of 2,72 million tonnes.

This significant drop underscores the extent of the agricultural crisis facing the nation, with implications stretching far beyond domestic borders.

Economist Dr Prosper Chitambara highlighted the potential repercussions on Zimbabwe’s national currency, the ZiG, as the country grapples with the need to import maize to offset the deficit.

“The strain on foreign currency reserves due to increased imports could exert pressure on the stability of the ZiG,” he cautioned. The reliance on imports not only strains the nation’s financial resources but also poses challenges in managing inflationary pressures, further increasing economic woes.

“With Zimbabwe compelled to procure maize from international markets to bridge the significant production shortfall, the demand for foreign currency escalates. This surge in demand can deplete foreign reserves, jeopardising the stability of the ZiG and heightening exchange rate volatility,” he said.

This inflationary spiral will not only erode purchasing power but also exacerbate economic woes, particularly for vulnerable segments of the population already grappling with economic hardship.

Dr Chitambara added that, “The confluence of these factors poses formidable challenges for Zimbabwe’s policymakers as they navigate the complex interplay between food security, currency stability, and inflation management.”

In light of the dismal maize harvest, economic analyst Namatai Maeresera raised concerns regarding the impact on the current budget and the likelihood of necessitating a supplementary budget.

“The shortfall in maize production will undoubtedly strain the government’s budget, as it grapples with the need to allocate funds for food imports to meet the population’s basic needs,” he stated.

With Zimbabwe compelled to augment domestic production with imports to offset the production deficit, the government faces mounting expenditure pressures that threaten to erode fiscal sustainability.

Maeresera said, “A supplementary budget, necessitated by unforeseen expenditures arising from the need to procure maize imports, would require recalibration of budgetary priorities and resource allocation, further complicating fiscal management.”

The looming prospect of a supplementary budget underscores the urgency of addressing the agricultural crisis and implementing sustainable solutions to bolster food security.

However, Finance, Economic Development and Investment Promotion Minister Mthuli Ncube is on record saying government will re-allocate the 2024 National Budget resources to grain imports.

Minister Ncube told a joint Parliamentary committee on Budget and Finance as well as Industry and Commerce that Treasury was going to re-allocate funds from other sectors from the 2024 National Budget.

“We did not know how deep the drought was and as such, we are going to use unallocated resources from other departments for the funds we need.”

He also ruled out an increased budget deficit saying “no budget deficit will be incurred and the government is expecting financial support. This will not be a major issue on the budget”.

Economist Gladys Shumbambiri-Mutsopotsi emphasised the broader implications of the drought on Zimbabwe’s trade balance.

“The decline in maize production not only affects domestic food security but also poses challenges in maintaining a favourable trade balance,” she explained. Zimbabwe, which traditionally imports a small tonnage of maize, now finds itself increasingly reliant on huge imports to bridge the shortfall, putting additional strain on the nation’s trade dynamics.

“Fear is that the ripple effects of the drought extend beyond the agricultural sector, with issues for livelihoods, inflation, and economic stability.

“The scarcity of maize could drive up food prices, exacerbating the plight of already vulnerable households and straining social safety nets.

“Experts urged policymakers to adopt a multifaceted approach that addresses both immediate needs and long-term resilience.

“Investing in irrigation infrastructure, promoting drought-resistant crop varieties, and bolstering support for smallholder farmers among the strategies recommended to mitigate the impact of future droughts and enhance food security. “International cooperation and assistance will also play a crucial role in navigating the challenges posed by the drought.

“Collaboration with regional partners, international organisations, and donor agencies will need to facilitate access to resources, expertise, and support mechanisms to bolster Zimbabwe’s resilience in the face of climate-related shocks,” said Shumbambiri-Mutsopotsi.

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