Election winner must deal with economic crisis

Gift Phiri

WHICHEVER party wins yesterday’s legislative poll will have to immediately find ways of resolving Zimbabwe’s political and economic crisis.

Analysts are unanimous that the biggest job will be undoing the damage that the 25 y

ears of Zanu PF rule has inflicted on the economy. Resuscitating the ailing economy and embarking on a new reconstruction and development programme reminiscent of the South African initiative in the mid-1990s and Zimbabwe’s own post-war efforts when Mugabe came to power in 1980 will in part mitigate the political problems.

The rampant high inflation, currently at 127%, and related skyrocketing prices of basic commodities will have to be brought down as soon as possible to bring some relief to long-suffering Zimbabweans. This will require outsiders, including the World Bank and the International Monetary Fund, who have abandoned Zimbabwe, to come aboard and help. It remains doubtful, of course, whether these institutions will come back without a political settlement.
 
Analysts criticise Mugabe, who this month publicly acknowledged hunger problems for the first time, for sidestepping the issue of the crumbling economy in the election campaign.


The 81-year-old strongman has denied his policies are to blame for the country’s economic woes, instead focusing Zanu PF’s campaign on attacking British Prime Minister Tony Blair — whom he accuses of economic sabotage and of trying to recolonise Zimbabwe through the opposition Movement for Democratic Change (MDC).

“Few will disagree that the single greatest need of Zimbabwe is to reverse economic decline,” economic commentator Eric Bloch said. The leading economist estimates that over 70% of Zimbabwe’s 12,5 million population are struggling to survive on incomes below the poverty datum line. “Instead of addressing substantive issues of national concern, the target is an immature, childish personal attack that can only further worsen Zimbabwe’s relationships with key elements of the international community,” Bloch said.


Analysts point out that the winner will have to face some tough economic decisions, most urgently over the exchange rate, which bankers say is skewed and threatening exporters’ viability.

Last year, Zimbabwe’s real exchange rate has appreciated by around 50% at the twice-weekly foreign currency auction, reflecting one of the world’s highest inflation rates of 127 % in the year to February. The Reserve Bank of Zimbabwe (RBZ) manages the auction as part of its anti-inflationary stance, but the result is that a yawning gap has opened between the official rate of $6 080 to the US dollar and the parallel market rate of around $13 500.


In March, the central bank could meet only 8% of companies’ bids for foreign currency. Bids currently run at around US$140 million per auction, but the RBZ can only meet US$11 million per auction. Analysts now expect the Zimbabwe dollar to devalue to between $8 500 and $10 000 to the US dollar within the next month.

Economists also predict that the prolonged decline in inflation, from 622% at the start of 2004 to 127 % last month, is ending. They expect steep rises in the prices of food, fuel and electricity, all held down by the government before the election.


Leading University of Zimbabwe economist Tony Hawkins states that price rises also seem certain given the apparently inevitable devaluation of the Zimbabwe dollar. The central bank’s interest rate and borrowing policies are also unravelling, according to bankers.


Hawkins said government’s domestic debt surged by 140% in the last month to $5, 8 trillion.
“Meanwhile the government is trying to raise a further $10 trillion to finance an ambitious restructuring programme for state-owned companies and local government,” he said. “But the first local bond issue, to raise $500 billion, raised just $124 billion.” Market analysts say the government’s $10 trillion target is out of reach, and it will have to scale down its investment plans and raise interest rates.


With a budget deficit target of $45 trillion, or 7,5 % of gross domestic product, and off-budget subsidies estimated at $3 trillion, the state’s total borrowing requirement, including the reinvestment plan for state-owned companies, is $17,5 trillion or 30% of forecast GDP. Hawkins said such borrowings were simply not feasible with the Zimbabwe economy in its present state.

With prices having risen almost 18 % in the first two months of the year, the official inflation target of 35% by December is already out of reach, he said. Hawkins said equally unachievable is the RBZ’s plan to merge the market and officially subsidised bank-lending rates at 50% by the middle of this year.


“The government is forecasting an economic recovery this year, saying it expects real GDP growth of at least 3,5%, driven largely by 28% expansion in agriculture,” Hawkins said. “But poor rains and the sustained effects of the government’s bungled land reform programme point to little if any economic growth this year.”

The London-based Economist Intelligence Unit recently forecast a further 3% decline in GDP in 2005.


Hawkins foresees three potential outcomes for the economy after the elections. He said the ruling party could win, receive international recognition and access to funding, which he thinks is unlikely. The opposition could win and embark on economic policies that are likely to have support from the West. Or, he said, the ruling party could win and fail to get international recognition.

“If the Mugabe government wins and it is not recognised then I fear the sort of gradual stagnation of the economy continues and conditions will get slowly worse,” he said.