HomeBusiness DigestBotswana's inflation at 8% as Zim nudges 600%

Botswana’s inflation at 8% as Zim nudges 600%

Dumisani Muleya

WHILE economic analysts in neighbouring Botswana cheered the slow-down in inflation in their own country and predicted bank rates will be slashed to stimulate the economy, in Zimbabwe analyst

s painted a gloomy picture of the economic situation after yet another dramatic surge in inflation.

Botswana’s year-on-year inflation dropped to 8,3% for the year to August, down from 9,2% in July.

Analysts said this, combined with a possible bank rates cut, would boost growth in the country’s flourishing diamond-driven economy.However, in Zimbabwe inflation on Monday shot up to a record high of 426,6% for the year up to the end of August, according to the government’s Central Statistical Office (CSO).The rise from 399,5% for the year up to the end of July followed hard on the heels of a recent increase from 375% to 399,5%.

Household maintenance costswere up 39%, bread and cereals were up 30,4% and the cost of meat rose by 24%. Since last year, the CSO figures said, cooking oil had gone up 759%, shoes by 582%, public transport by 460% and cigarettes by 453%.However, analysts say the figures are deceptive because they were based on fixed prices of goods and not the black market prices, which apply in reality.

They say real inflation was now around 600% and was galloping towards the 1 000% mark by the end of the year.

This is happening against a background of continued depreciation of the local currency on the parallel market, something that has serious inflationary consequences.

“The latest inflation figures are not surprising at all. What is perhaps surprising is that they are so low,” said analyst John Robertson. “I think this is because the exchange rate crash in August has not been factored in. I expect the September figures to rise sharply, worsening the economic situation.”

High money supply and black market dynamics are aggravating the volatile inflation trends and concomitant problems.

Government has admitted that inflation – which it created through uncontrolled budget deficits and money supply – is now the people’s worst enemy.

But it is not doing much to resolve the problem. Instead, it continues to worsen the problem through a pattern of reckless borrowing and spending that has created an unbridgeable gap in the Treasury.

Zimbabwe, which has one of the fastest shrinking economies in the world, is going through a crisis characterised by fundamental macro-economic distortions and unprecedented poverty levels.

The economy, which is in its third year of contraction, is this year expected to shrink by 7,4%.

Inflation differentials and economic growth disparities between Zimbabwe and neighbouring countries such as Botswana are widening, leaving the once regional economic powerhouse in free fall and destabilising other economies.

As inflation escalates and economic performance worsens, a growing proportion of the population is below the poverty line (on less than US$1 a day).

In June, the United Nations ranked Zimbabwe 90th in the list of the world’s 94 poorest countries.

At least 75% of Zimbabweans are classified as living in abject poverty.

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