Murerwa fails to tackle inflation head-on

Ngoni Chanakira


FINANCE and Economic Development minister Herbert Murerwa last week announced a $67

2 billion supplementary budget, admitting in the process that Zimbabwe’s macro-economic fundamentals are deteriorating.


Total expenditures of $1 442,3 billion and revenues of $1 141,3 billion will result in a budget deficit of $301 billion against the original $230 billion forecast in November last year.


This translates to an increase from 7,3% of gross domestic product (GDP) to 11,5%, a symptom of gross economic mismanagement on the part of government.


Murerwa said while performance during the first half of the year had been characterised by over-performance of revenue and under-performance of expenditure, other developments had necessitated additional demands on the fiscus. These included the implementation of the results of the civil service job evaluation exercise, pension reviews, provision for requirements of measures contained in the National Economic Revival Programme (Nerp), and capital development.


Since 1997 Zimbabwe’s economy has weakened and inflation has continued to accelerate from an average of 18% to 70,4% in October 1999. It has spiralled to a new record of nearly 400% in July. 


High inflation levels have progressively eroded the country’s competitiveness. This has resulted in diminished exports and foreign currency earnings.


Typically long on problems but short on solutions, Murerwa said “containing inflation remains central to reversing output decline, restoring business confidence, increasing foreign currency generation, encouraging savings, investment and employment creation”. He didn’t say how inflation would be contained.


Murerwa admitted that as inflation escalates and economic performance declines, a huge proportion of the population now lives below the poverty datum line. Unemployment is now estimated at 75% due to company closures and reduced output.


The financial discipline that is needed to rein in spending and inflation are lacking in government, analysts say. Ministries are competing to out-do each other in blowing their budgetary allocations instead of saving. The Reserve Bank of Zimbabwe (RBZ) says both domestic and foreign savings have been declining since 1995.


The civil service, armed forces, and even village heads and war veterans, receive regular salary hikes from government. These, in most cases, are not budgeted for and Murerwa admits this. Gone are the days when budgeting was done before increments were approved and then dished out.


Ever since war veterans managed to arm-twist President Robert Mugabe into granting them packages of $50 000 each in 1997, government’s auditing department has virtually ceased to exist.


The RBZ appears to have forgotten its functions and has allowed government to borrow billions of dollars every week to finance unbudgeted projects. The last time we heard from the RBZ, government was borrowing $50,2 billion every week.


On the ground, however, real GDP growth declined from 10,6% in 1996 to near zero in 1999. The weakening performance of the economy was initially reflected in the slump in manufacturing and mining.


Manufacturing and mining declined against a background of weak domestic and export demand, foreign exchange shortages, cash flow difficulties, rising production costs and energy shortages.


Since the introduction of the fast track land resettlement programme in 2000 agriculture, previously the backbone of the economy, has been in free-fall.


In fact the country’s agricultural performance has turned into a tragic tale: from being one of the best in the region, Zimbabwe now depends on international goodwill to feed itself.


The deteriorating macroeco-nomic environment necessitated the introduction of the Millennium Economic Recovery Programme (Merp) to “raise economic growth and improve living standards”.


Other fantasy programmes include the National Economic Recovery Programme (Nerp) and the latest mirage, the National Economic Revival Programme (Nerp).


The RBZ recently put its head on the block when it said domestic and foreign savings, a major source of financing, were in a state of disaster. It said these were critical in determining the level and rate of investment and economic growth.


The central bank is now being attacked by politicians for exposing government’s profligacy and failure to adhere to its own fiscal policy.


The country’s domestic savings ratio fell from 20,8% of GDP in 1995 to 9% in 2000, while the capital account balance deteriorated from a surplus of 7,1% of GDP in 1995 to a deficit of 6,5% last year.


The bank says the decline in domestic and foreign savings has adversely affected investment and industrial capacity utilisation, leading to a sharp contraction in domestic output.


“The long-term solution to stimulating investment and growth, therefore, hinges on the country’s ability to reduce inflation to sustainable levels in order to enhance savings mobilisation,” the RBZ said in a recent analysis of the country’s investment financing. “Zimbabwe’s high inflation has resulted in more resources being channelled to non-productive speculative activities and consumption. Sustained reduction in inflation restores the real value of domestic savings and is, therefore, key to economic recovery.”


Instead of going cap in hand to parliament to beg for more funds government should save money for a rainy day, the RBZ says.


Murerwa is correct when he says the major challenges the country faces arise mainly from high inflation and poor foreign currency generation and that many countries in the region and beyond have gone through similar experiences and successfully resolved them. But that is easier said than done.


Analysts for example question why Zimbabwe continues to maintain numerous embassies scattered across the globe when there are no dividends flowing back into the country? Why, for example, does Zimbabwe have such a huge cabinet with ministers in other ministers’ offices? Why, for example, does President Mugabe continue to play the political balancing act by keeping two vice-presidents each with ministers in his office?


All these projects are costly and Murerwa needs to tell his colleagues about this. Zimbabwe’s long gravy train has turned the country into an international laughing stock!