Zim to unveil new economic strategies

Zim to unveil new economic strategies
By Kingsley Kaswende in Harare
Thursday September 06, 2007 [04:00]

The minister’s budget and monetary policy review statement, which comes against a backdrop of hyperinflation currently running officially at 7,600 per cent and huge budget overruns by line ministries, is expected to address several challenges including hyperinflation, price distortions, food and fuel shortages, disorderly foreign exchange rates along with the availability of foreign exchange, people’s saving culture and balance of payment.

These are the most crucial economic issues affecting the country that was once the breadbasket of southern Africa, according to Luxon Zembe, former chief executive of the Harare Chamber of Commerce and Industry.

Reserve Bank of Zimbabwe (RBZ) Governor Dr Gideon Gono last month put off the unveiling of the mid-term monetary policy review statement, which will now concurrently be presented with the supplementary budget that has just been approved by Cabinet.

Zembe says the budget faces a mammoth task of trying to fill in the huge gaps that have been left virtually vacant by the 2007 Budget statement that has already missed most of its targets halfway into the year.

Inflation, forecast by the 2007 Budget to close the year at between 350 and 400 per cent, has already a reached world record of 7,600 per cent according to official RBZ figures. Independent estimates, however, are pegging the inflation figure well beyond 10,000 per cent.

The budget deficit that was predicted at -17,5 per cent of Gross Domestic Product (GDP) has already ballooned to about -40 per cent, creating the need for a supplementary budget.

Of the Z$4.6 trillion 2007 Budget, the finance ministry had targeted a deficit of Z$1.6 trillion while the economy was forecast to expand by between 0.5 per cent and one per cent spurred by improved agricultural productivity.

Agriculture was forecast to grow by about 28 per cent but indicators show that it will shrink by almost that size this year while the mining industry, expected to grow by seven per cent, has fallen by 13 per cent, according to Chamber of Mines statistics.

“We look forward to the minister to present a statement that will address issues surrounding inflation, shortages of commodities, the two-tier forex rates that are decimating business as well as balance of payment,” said Zembe. “The economy cannot go on like this.”

Price distortions and shortages of commodities have hit the economy since June 26 when the government assumes price controls.

The controls have left companies operating in the red zone on account of huge operating costs and low or non-existent profit margins.
Despite the government reviewing the controlled prices last week, commodities are still missing from shop shelves.

“We were happy when the government announced the new prices thinking the supply of commodities will improve but nothing of that sort has happened,” said Denford Matashu, general manager of chain supermarket Food World.

“Maybe let’s wait and see what happens in the next few weeks but manufacturers are arguing that they can’t supply because of small profit margins and lack of fuel.”

Matashu said supermarkets have sometimes had to collect supplies from suppliers, adding that retailers would want to see more adjustments from the 20 per cent recently announced by the government.

Only last week, the Zimbabwean government gazetted a new law that prohibits increases in salaries, prices and other charges on account of the consumer price index, exchange rates or taxes.

In the new law, the ‘normal’ market forces that sanction increases in retail prices or charges will be overlooked and instead prices will have to be approved by the National Incomes and Pricing Commission (NIPC), appointed by the President.

From now on, all proposed fees charges and tariffs by government departments, statutory bodies, state universities and companies where the state is a majority or sole shareholder must be approved by the Commission.

Private associations, schools and companies also fall in the net of those prohibited and their price or charge increases will follow standards set by the NIPC. The government expects the new regulations to have an anti-inflationary effect and to push down inflation.

Zembe said the government also needed to come up with realistic policies to avail the much-needed foreign currency. He called for the review of the two-tier foreign exchange system that he said was confusing business. The government has two exchange rates - Z$250 and Z$15,000 - over and above the dominant black market exchange of Z$250,000 per US dollar.