Maravi

(TALKZIMBABWE) Is the Zimbabwean economy recovering?

Is the Zimbabwean economy recovering?
Comment
Mon, 13 Jul 2009 09:03:00 +0000

THERE is heated debate as to whether or not Zimbabwe's economy is recovering. The key question we need to ask is: how do we know if the economy is recovering?

The improving stock market doesn’t signal that the economy is improving. One theory goes that the stock market is the leading indicator and its growth signifies that the economy will get better.

The reopening of the Zimbabwe Stock Exchange, surely, cannot be an indicator.

The timetable for recovery is a matter of debate and the evidence is mixed.

Since reopening, and since the signing of the Global Political Agreement, the stock markets have improved. As a result, some presume that Zimbabwe’s economy is recovering. But it’s largely because of other factors that stocks are surging: the huge slump in previous years, altered monetary policies, the and other favourable policies. But these measures are not related to the health of the economy.

Increasing fiscal revenue, which Finance Minister Tendai Biti talks about doesn’t indicate that the economy has started recovering.

This June, fiscal revenue rose by 0.2 percent, the first time in years. Many factors contributed to the sudden increase.

However, is doesn’t reflect the macro-economy at all. Because of the unbalanced revenue and expenditure, the Ministry of Finance has just announced that it will increase the consumption tax on alcohol, and will levy new taxes.

So it’s foreseeable that fiscal revenue will increase later on, but will the economy be better?

Some say reduced inflation could signal economic recovery. Reduced inflation in Zimbabwe is not even measured against the Zimbabwean dollar, but the US dollar. We have stopped using our own currency; or are using it concurrently with the Rand and US Dollar.

But as the economist Milton Friedman suggested, any type of inflation is just a monetary phenomenon, a result of excessive fluidity. Inflation is possible if the relaxed monetary policy continues, and commercial bank loans keep growing. But stagflation is also possible.

So what might indicate economic recovery? Maybe drop in unemployment -- real unemployment rate, not the “registered unemployment rate.”

A booming economy requires more labour, the most essential part of the economy. Increased employment drives up consumption, which will boost the economy. Only when the economic growth relies on internal forces, can we announce an improvement in the economy.

But unemployment is the most serious problem facing Zimbabwe. Thousands of workers and college and university graduates are in want of jobs. More are feeling the pressure. This shows that the current economic recovery is not stable or dependable.

The loans that are being provided by African governments and institutions and China, etc are stimulus packages that will go mainly into infrastructure, and can’t help with employment. But they should.

Unless this is done, people’s confidence is not completely restored. We still need to make more efforts in structural reform.

Labels: ECONOMY, TENDAI BITI

posted by MrK @ 4:19 PM