STRONG>Gono’s magic wand won’t do the trick

THERE was much jubilation this week when Zimbabweans were told by the Central Statistical Office (CSO) that the country’s inflation figure had gone down by 20,8 percentage points from a record 620,5% for November to 598,7% in December.

Some quarters, especially in government, were quick to point out that inflation had nose-dived because of Reserve Bank governor Gideon Gono’s monetary policy stance.

They said Finance minister Herbert Murerwa’s prediction that inflation would stand at 700% during the first quarter of this year had been made to vanish by Gono’s “magic wand” and inflation would now be less than 500% for this period.

Economists however point out fatal flaws in these claims. For one, the statement was released in mid-December and so inflation figures would not have been affected by Gono’s statement as CSO officials were still collecting the necessary data.

Inflation figures are collected using what is termed a basket of goods and services that the ordinary Zimbabwean needs for  normal day-to-day upkeep.

These include milk, bread, cooking oil, low-quality meat, and fuel.

Inflation figures are also calculated on the cost of services such as transport, accommodation and medical needs. That information is yet to feed through for the current quarter.

Further, basic commodities are still not available on the shelves of major supermarket chains but are stacked outside their front doors. They are selling at exorbitant parallel market rates. These are not a part of the CSO’s calculations.

Fuel is also available on the parallel market resulting in transport costs being pegged at these rates.

Rentals are pegged and in many instances now charged in foreign currency so one needs to ask what basket is used when making the inflation calculations.

Health services are in the intensive care unit and there are no medicines in the country. Only the well-to-do with foreign currency accounts have access to services outside the country. What basket is used in such instances one may ask?

The auction system has been praised for bringing to an end the thriving parallel market in the country.

The system, recommended by the Confederation of Zimbabwe Industries (CZI), has however already come under fire from the same body that wanted it introduced.

The CZI says it now wants a pegged figure of $5 800 to the United States dollar as opposed to the $4 195 average currently being used.

The CZI points out that an “unviably low” auction price in the initial period will undermine exporter confidence in the auction system, delay investment in export growth, and stimulate foreign currency demand for consumptive purposes. The RBZ has thrown out the CZI’s suggestion.

While the auction system has brought about some sanity in the financial services sector there is still a thriving parallel market on the streets of Harare and Bulawayo.

One thing is evident though — there is little money trickling into RBZ coffers at the moment. Businesses are holding onto their foreign currency in anticipation that Gono will soon run out of steam or face obstacles.

There is a long list of Reserve Bank governors and Finance ministers who tried to clean up Zimbabwe’s Augean stable but eventually met a brick wall including Gono’s predecessors, Kombo Moyana and Leonard Tsumba.

The salient fact facing him is that the country is not earning sufficient forex to meet its import needs. And inflation is 600% higher than that of our trading partners.

Those facts on the ground are likely to fuel the parallel market —  and with it inflation — for some time to come.

At the end of the day we have to face another harsh reality. The government’s scorched-earth land policies have sabotaged the country’s means to earn forex through exports of tobacco and horticultural goods. And tourists are staying away in droves as a result of the country’s well-deserved reputation for political violence and selective application of the law.

There will be no foreign investment until the rule of law is restored. There is no question of the Bretton Woods institutions extending balance-of-payments relief until earlier conditions have been met. And the land reform programme will need to be cleaned up and brought into line with constitutional guarantees on property rights as the parliamentary legal committee’s adverse report on proposed amendments underscores.

Gono will have difficulty dealing with those basics. While we don’t want to rain on his parade, he should be the first to realise that the current respite is only temporary.

Sooner or later he will have to face the hard facts that underthe current regime a misma-naged economy, macro-economic distortions, corruption and shortages have become a way of life. He may tinker at the margins. But without the engagement of the international community and nationally agreed land and economic policies Zimbabwe’s future remains bleak.

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