Annual inflation crept up for a third consecutive month to 58.48% despite m-o-m inflation easing from 6.50% in October to 5.76% in response to contractionary measures implemented by the central bank. The country will subsequently miss its inflation target to CY21, attributable to a mix of exogenous price shocks and movements in the parallel market rate, with the revised end of year inflation estimate expected to fall between 52% and 65%.
The Minister of Finance and Economic Development delivered the 2022 budget speech with general theme of stimulating growth, attending to social welfare whilst simultaneously managing public spending. The revised budget deficit for CY21 is now expected to come in at ZWL$14bn from the previous target of ZWL$30.8bn driven by Corporate Income Tax among other factors. For 2022, the finance ministry has estimated revenues of $850.8bn constituting 16.8% of GDP, whilst the expenditure is expected to overrun by ZWL$76.5bn to ZWL$927.3bn constituting 18.3% of GDP. The biggest allocations were awarded to Agriculture, Primary and Secondary Education and Health. The government is targeting a deficit of below 1.5% of GDP. The deficit will be funded through issuance of government securities, utilisation of the country’s SDR allocation and external loans. As part of deficit financing, the government will issue US$ denominated Government Bonds of up to US$100mn to be listed on the VFEX during the first quarter of 2022. We believe budget containment will heavily rely on successful expansion of the tax base and cost containment otherwise the government budget will further overrun and exceed the forecasted ZWL$76.5bn deficit as is the historical norm. Some notable changes in the budget statement increasing excise duty on cigarettes from 20% + US$5.00/1000 cigarettes to 25% + US$5.00/1000.
The ZSE lost steam in the month of November with all indices ending in the red as government moved to suck out excess liquidity. We have been observing continued downward pressure on prices as the market corrects from a dislocation from fundamentals due to inflation hedging. All things held equal, we expect the current trend to hold and the current dip presents a buying opportunity in select undervalued stocks.
