Money Wise

Zimbabwe their Economy


Wed 1 Aug 2007

100,000% inflation alert


ZIMBABWE'S inflation rate could hit 100,000 per cent by the end of the year, the International Monetary Fund predicted yesterday.

The forecast came as the country introduced its latest banknote: for 200,000 dollars, just enough to buy a small bag of onions.

The new bill is worth 400 at Zimbabwe's official rate of exchange, set by the Reserve Bank of Zimbabwe. On the widely used black market, it is worth a measly 75p.

The central bank said it was introducing the new note - the latest of Zimbabwe's infamous paper bearer cheques - for the "convenience" of businesses and consumers fed up of lugging around huge wads of money.

But the bill is not going to stretch very far, especially after Robert Mugabe's controversial price slash early this month, which has left shelves and fridges empty in shops and supermarkets across this once-prosperous southern African country.

These days, Z$200,000 will buy a struggling Zimbabwean housewife just one and a half bars of locally produced Dove soap. It won't be enough for a bag of rice, currently selling under the counter at about Z$230,000 per kg.

And don't even think about fuel. Garages ran dry more than two weeks ago: if you're lucky enough to find petrol on the black market, it'll cost you at least Z$300,000 per litre.

Mr Mugabe is losing the inflation battle.

Abdoulaye Bio Tchane, director of the IMF's Africa department, said yesterday from Maputo in Mozambique: "If recent monthly trends continue, IMF staff projects that year-on-year inflation could well exceed 100,000 per cent by year-end.

"Economic prospects are bleak, gross domestic product will continue to contract in 2007 and inflation will spiral higher. Price controls that are being enforced are likely to exacerbate shortages and ultimately fuel further inflation".

The Central Statistical Office stopped publishing inflation data two months ago, when the rate rose past 3,000 per cent.

Analysts said last week the figure for June could have topped 13,000 per cent, based on a comparison of consumer basket prices published by the Consumer Council of Zimbabwe.

The forecast will not please the 83-year-old Zimbabwean president, who wants to keep prices down ahead of next year's presidential and parliamentary polls.

The former guerrilla leader has been in power since independence from Britain in 1980.

State-approved analysts last month promised the Herald daily - the government mouthpiece - that month-on-month inflation rates would soon drop to below 50 per cent because of the price war.

Mr Mugabe was forced to introduce the new banknote on the day he was due to scrap his old currency.

Zimbabwe's bearer cheques were only ever supposed to be valid until 31 July, 2007, when a new, stable currency was to be introduced. Last weekend, the authorities quietly admitted the notes would have to remain in place for another year.

With spectacular disregard for the rules of economics, Mr Mugabe has vowed to print even more money for underfunded municipal projects.

"Where money for projects has not been found, we will print it," the former guerrilla leader told town councillors on Friday, apparently ignoring the generally accepted view that printing money is a recipe for inflation.

Ironically, the jaunty new red and grey 200,000 bearer cheques carry their own glaring picture of failure and mismanagement.

They're decorated with an image of the twin cooling towers of Hwange Power Station, which was Africa's largest thermal power station north of the Limpopo River when it was completed in 1987.

Reports say the power station has now fallen into disrepair and is operating at less than 60 per cent capacity, leaving many Zimbabweans in the dark for hours each day.


• Small bag of onions: Z$200,000

• Bar of Dove soap: Z$140,000

• One kg of rice: Z$230,000

• One litre of fuel, where available: Z$300,000

• 200g local cheese: Z$230,000

• 500g washing powder: Z$750,000

• Box of Bran Flakes: Z$260,000

• White loaf with sesame seeds: Z$90,000 (standard loaves are officially Z$22,000 but are not available)

• Small pot of jam: Z$150,000

• Packet of biscuits: Z$140,000

• One litre enamel paint: Z$1.9 million

• Pack of four disposable nappies: Z$1.2 million

• Tin of tuna: Z$290,000

• Tin of baked beans: Z$65,000

• 500ml sterilised milk - where available - Z$32,500

• One egg - where available - Z$15,000

• No chicken, beef, pork, sausages, cooking oil, sugar, flour, margarine, fruit cordial, matches.

• Government Herald newspaper (Page 1 yesterday proclaimed "Zanu-PF mayors endorse President"): Z$25,000. Normally sold out by 9am

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