Mthuli Ncube finally addresses Parliament on the State of the economy

I must say because of this robust activity in the Zimbabwe economy – the economy is actually bigger than we think. We have been saying that the economy is $18bn in size in terms of GDP. That is just a figure. The real figure is that the economy is actually $25bn in size. It is 40% bigger. I made this announcement about two weeks ago just before I went off to Bali to begin the interaction negotiation with partners whom we owe money globally. The dynamism is coming from the expansion in the informal, services and financial sectors. The services sector has grown and it is driving this growth in the size of the economy.

This phenomenon is not unique to Zimbabwe. All other African countries are experiencing this where the services sector has grown. There is a rule that every five years, the economy has to be rebased. What I am explaining in terms of the change in the size of the GDP, that was a rebasing exercise. In another five years, we are going to rebase and again the economy will move upwards accordingly.

In the agricultural sector, what is driving growth is obviously productivity in tobacco, cotton, sugar cane and soya beans. In the mining sector it is gold, coal and chrome being the main drivers. Again I have got a table in my written note that explains where this growth is coming from sector by sector. I have included all the sectors that you may think of in Zimbabwe.

I now want to turn to inflation which is the internal value of money.  The rising money supply occasioned by the budget deficit financing coupled with foreign currency shortages has seen a surge in inflationary pressures during the first half of 2018 but also in this third quarter of the year, already the evidence is pointing in that direction. Annual inflation stood at 5.4% in September 2018 with signs of resurgence as I have said compared to the first six months where it was relatively stable. I have got a chart below that shows the movement in this inflation upwards in terms of the visual presentation of this upward trend.

The main drivers of inflation during this period have been the parallel market exchange rates driven by foreign currency shortages giving rise to speculative demand as well as induced demand of US dollar as an asset of store of value. The eventual pass through effect of this exchange rate premiums has filtered into a sudden price increase particularly on goods as you can imagine. This was worsened by the firming oil prices that I referred to and the depreciation of the South African Rand against the US dollar which also has an impact because that is our largest trading partner. Anything that happens to the rand-dollar exchange rate is transmitted into Zimbabwe as well.

Switching to public finances, with cumulative revenues of US$3.8bn and expenditures of US$6.2bn between January and September this year, the resultant budget deficit of US$2.4bn is unsustainable in the light of constrained capacity to close the gap. We have had an unsustainable budget deficit. This year that budget deficit will come out at a double digit above 10%. I am determined that within the next two years it comes down to single digit. I have a target over a three year period to bring it to just below 4%. That target is contained in the Transitional Stabilisation Programme. I urge you all to go to that section that pertains to fiscal consolidation.  Fiscal consolidation is what I will be focusing on quite a bit in terms of macro agenda.

Continued next page

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