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Nothing For Money 24th March 2003 The inflation scourge gripping Zimbabwe has fuelled poverty and costs of production, derailing both the economic recovery plan and the current National Budget that was premised on a lower rate of inflation. Inflation, which reached a record 220,9 percent last month, has placed Zimbabwe among the world's fastest declining economies. Conservative estimates indicate that inflation could reach between 450 percent and 500 percent by the end of the year. Analysts said companies, bleeding from a combination of price controls and higher parallel market rates for foreign currency, could no longer swallow the ballooning input costs. The situation is more acute for entrepreneurs caught up in price controls because they cannot pass on additional costs to the consumer. The market share is also getting smaller and smaller as a result of falling disposable incomes and retrenchments. At least 70 percent of the country's population is now living below the poverty datum line. David Mupamhadzi, Century Holdings Limited's chief economist, was convinced that the 2003 National Budget was now way off target. It would, therefore, be a mammoth task to achieve Finance and Economic Development Minister Herbert Murerwa's target of bringing down inflation to 96 percent before the end of the year. "By the second half of this year, ministries would be asking Treasury for additional resources," said Mupamhadzi. Murerwa was obviously over-optimistic by choosing to ignore negative factors that militated against his projections. At the time of the Budget presentation, Zimbabwe was already experiencing a severe drought and needed to import maize and wheat to feed the starving population. Foreign currency inflows had taken a severe knock, declining to just two weeks' import cover at the time. Leonard Tsumba, the Governor of the Reserve Bank of Zimbabwe, unveiled his new monetary policy a few weeks later. Murerwa was also aware of the donor fatigue that cut off all lines of credit which Zimbabwe previously enjoyed. The drying foreign exchange resources and the food shortages meant that every commodity available would be sold at exorbitant prices. Mupamhadzi said Murerwa would have to go back to the drawing board. "If you look at the recovery plan, you will notice that the thrust was to create an environment conducive for the exporter, hence the devaluation of the exchange rate applicable to exports from Z$55 against the United States dollar to Z$800. "The increase in inflation has eroded that benefit at a time when inflation in regional countries is also coming off," he said. Policy makers were faced with a situation where they could either ignore the need to further devalue the dollar and leave business to suffer, or slash the value of the currency to redress the situation. Mupamhadzi said seeking recourse through supplementary budgets worsened the inflation outlook and exacerbated the Budget deficit. As usual, the government would have to compete with the private sector to borrow from the domestic market to finance its spiralling Budget deficit. Mismanagement, inefficiency and allegations of gross corruption were responsible for most losses parastatals made. In an effort to reduce government expenditure, proposals had been made for the government to shed its stake in parastatals. But the privatisation drive had not gone into full throttle. "This puts pressure on interest rates and inflation," said Mupamhadzi, adding that the government may consider issuing more treasury bills (commercial papers issued by the central bank on behalf of the government when borrowing) to finance the Budget deficit. Samuel Undenge, a trade and economic consultant who supports the current economic reforms, believed that the parcelling out of land from white commercial farmers to blacks would improve the supply side of agricultural commodities and stabilise inflation in the long run. His view was also shared by Jonathan Kadzura, another local economic commentator. Gibson Mashingaidze, another analyst, said a number of companies choked by the inflation scourge were now facing closure. Wage and salary increases awarded by most employers had fallen way below the rate of inflation, straining relations in both the industrial and commercial sectors. Mashingaidze urged the government to bring on board the international community, particularly the International Monetary Fund (IMF) and the World Bank, which turned their backs on Zimbabwe before the turn of the century. "We need international support and cannot afford to ignore institutions such as IMF and the World Bank. Investors look at the IMF and World Bank for direction if they put a thumbs-up for Zimbabwe," he said. The inflationary spiral has also hit pensioners hard as they live on fixed incomes, and the ordinary consumers who are finding it hard to keep pace with the rising cost of living. It is now virtually impossible for an average Zimbabwean to buy a vehicle or a house as prices have shot up by over 300 percent in the past 12 months. Daily News (Zimbabwe) -
By Hama Saburi Business Editor |