Money Wise

Zimbabwe's Inflation


Zim FM sets ambitious targets

Dec 03 2006 05:57 PM

Harare - Zimbabwe's embattled finance minister has set a Herculean task of slashing
                                    four-digit inflation by two-thirds and getting the ruined economy back on track, but experts say his latest budget is not
                                    up to the job. 
                                    Presenting the budget for 2007 on Thursday, Herbert Murerwa forecast marginal growth of 0.5% to 1% and added that the country's
                                    astronomic inflation rate would fall to 350%. 
                                    The projected growth would result from "good weather, stabilising of commodity prices, improved mineral deposits and growing
                                    number of tourist arrivals," Murerwa said. 
                                    But critics say the minister is far too optimistic in a country where the economy has shrunk by one third. The former regional
                                    breadbasket now suffers from critical shortages of food and fuel. 
                                    Zimbabwe's agriculture sector is expected to grow by 6.4% owing to bountiful rains in the current farming season, Murerwa
                                    Agriculture, once the backbone of the economy, is in decline following a controversial land reform policy which saw the often
                                    violent seizure of white-owned farms by landless blacks who often lacked expertise and equipment. 
                                    'No solutions'
                                    Murerwa also said the mining sector would grow by 4.9% on the back of strong global prices. 
                                    "The budget is still very shy to deal with issues affecting the economy such high unemployment, foreign currency problems
                                    and inflation," Calisto Jokonya, president of Confederation of Zimbabwe Industries (CZI) told AFP. 
                                    "It is good the minister knows the problems affecting our country, but he did not offer any solutions." 
                                    Central bank governor Gideon Gono has blamed runaway inflation partly on a strong growth of money supply that was fuelled
                                    by the free printing of currency to service old debts owed to the International Monetary Fund. 
                                    The IMF had threatened to expel Zimbabwe for failing to meet debt payments. 
                                    'Country remains under siege'
                                    Best Doroh, an economist with ZB financial holdings, said Murerwa was being "overly-optimistic" with his targets for inflation
                                    and growth. 
                                    "He is projecting a real growth rate of between 0.5% to 1% in 2007 premised on the anticipated improved performance of the
                                    mining and agriculture sectors which are expected to grow by 9.4% and 4.9% in 2007. 
                                    "It is interesting to note that the original projection for agriculture was 23% and this has been revised substantially downwards
                                    to 6.4%," he said. 
                                    Murerwa blamed the country's woes on sanctions imposed on President Robert Mugabe and members of inner circle by the United
                                    States and the European Union for allegedly stifling democracy and human rights. 
                                    "It is no secret that the country remains under siege, facing sanctions from the West, characterised by lack of balance of
                                    payments support, lines of credit, foreign direct investment and deliberate efforts to undermine economic turnaround programs,"
                                    he said. 
                                    'A lot of words which mean nothing
                                    Independent economist Eric Bloch dismissed the budget, however. 
                                    "It had a lot of words which mean nothing," Bloch said. 
                                    The southern African nation is labouring under record inflation of more than 1 000%, spiralling unemployment and an acute
                                    shortage of food and essential goods. 
                                    As a result of a 6% decline in exports, the current account deficit is pegged at $543m this year, Murerwa said. 
                                    The current account is a key economic indicator of net inflows and outflows of payments, sending important signals about trends
                                    such as the demand for national money and the relative performance of different areas of the economy.