Zim suffers effects of short-term infrastructure financing

Some experts have worned Zimbabwe needs not only to address governance and prudent monetary discipline in order to arrest currency volatility as the scourge will persist as long as the budget is financing ongoing massive infrastructure development.

Dr Prosper Chitambara, a prominent economist, underscored the pivotal role of budgetary support and a favourable balance of payments in sustaining economic stability.

“Zimbabwe’s monetary woes are deeply intertwined with the absence of adequate budgetary support and a precarious balance of payments situation.

“These factors exacerbate the challenges of financing ambitious infrastructure projects, leading to a vicious cycle of inflation and currency volatility.”

Indeed, the country’s infrastructure drive has been ambitious, aiming to revitalise key sectors and bolster economic growth.

However, the financing mechanisms employed have often fallen short of sustainable practices.

When infrastructure projects are funded through short-term finance, it injects liquidity into the economy without corresponding productivity gains.

This excess liquidity fuels inflationary pressures and undermines the stability of the currency.

Gladys Shumbambiri-Mutsopotsi, an economist specialising in monetary economics said; “Short-term financing for infrastructure projects leads to an expansion of the money supply without a commensurate increase in output.”

She pointed out; “This imbalance between money supply and real economic activity fuels inflation, erodes purchasing power and erodes confidence in the currency.”

Former Reserve Bank Governor, Dr John Mangudya, last year vowed that the country’s infrastructure drive was noble but was one of the causes of inflation.

Dr Mangudya said; “We do believe that government has done very well in paying contractors, in terms of using short term money for a long-term project. What normally happens and what is happening in other countries is that they get long term money from AfDB and IMF which they use to construct roads and dams.”

“Zimbabwe has been doing it through short term money since we have no access to foreign money, without demonising ourselves, we have done very well as a country in terms of public works. So, this is where the mismatch comes in and therefore using budgetary money has a cost, and the cost is inflation.”

Dr Mangudya added that inflation being felt in the country, besides the imported one, was the downside risk of a good policy.

Economist, Dr Trevor Mapingure, said the private sector needs to move in and help the government in order to reduce the shocks of this type of infrastructure funding.

“The government is doing a great job of repairing and constructing new infrastructure but they need the private sector to compliment them,” Dr Mapingure said.

According to the renowned economist most of Africa’s debt is going towards infrastructure development but the difference with Zimbabwe’s situation is that theirs is long term external funding.

Dr Mapingure added that; “Infrastructure is funded by long term loans in order to avoid economic consequences such as inflation. If you check, 78 percent of debt in Africa is long term infrastructure debt and this is how it should be done in order to protect the economy from shocks.”

The consequences of Zimbabwe’s monetary challenges reverberate across the economic landscape, affecting businesses, consumers and investors alike.

Hyperinflation erodes the value of savings and investments, rendering long-term planning and investment decisions increasingly precarious. Currency volatility complicates trade and investment, deterring foreign investors and undermining the competitiveness of domestic industries.

Shumbambiri-Mutsopotsi underscored the need for a monetary policy framework that prioritises price stability and exchange rate stability, anchoring inflation expectations and bolstering confidence in the currency.

“A credible commitment to monetary discipline, coupled with prudent fiscal policies, is essential to restoring macroeconomic stability and laying the foundations for sustainable growth,” she said.-ebusinessweekly