THERE is no hope left to salvage Zimbabwe’s faltering economy from an inflationary abyss despite public posturing by government which launched a fresh economic revival blueprint a fortnight ago.
The government two weeks ago launched t
he National Economic Development Priority Programme (NEDPP), which it says will rescue the country from economic meltdown.
Under the NEDPP, the government plans to mobilise US$2,5 billion within the next three months, boosting efforts to stabilise the economy, reduce inflation and increase agricultural production.
The NEDPP is expected to create economic stability within the next six to nine months and to enhance savings and trigger investment inflows.
But evidence just a week after the launch of the blueprint suggests that the economy is continuing to slide over the precipice.
Last week, government awarded civil servants a 300% salary hike, pushing its wage bill to well above 50% of gross domestic product (GDP) and raising the prospect of increased money supply growth and consequently further inflation through unbudgeted expenditure.
Inflation, which peaked at an all-time high of 913,6% year-on-year for March, appears to be roaring towards the 1 000% mark and analysts believe this could be breached in a month – if it has not done so already.
The government in January awarded civil servants salary increments of 230%, slightly above the $30 trillion it had budgeted for its entire wage bill.
The latest increases, effective from this month, will push the wage bill up by 300%, raising the prospect of increased note-printing.
Money printing stokes money supply growth that provides an impetus for higher inflation.
Money supply expanded from 177,6% in January 2005 to 411,5% in November of the same year, according to the latest figures released by the central bank.
There are real fears among economic players that money supply growth figures might be understated, and a number of factors might contribute to this.
Money supply is the generation of new money, in other words, an additional stock to money already in circulation.
Sources indicated that the national budget for 2006 had already been largely exhausted and a supplementary budget was expected in a few weeks’ time to cater for new expenditure requirements arising from new salary payments.
Since 2005, when the country experienced a 500-percentage points decline in inflation, the inflation rate has soared unabated.
Reserve Bank of Zimbabwe governor, Gideon Gono, in January made a rare admission that the central bank had printed a whopping $21 trillion to purchase United States dollars for repayment of IMF arrears to stave off an imminent expulsion of the country’s membership to the institution.
This is besides cash printed to raise money for grain and fuel imports, as well as for other quasi-fiscal operations by the RBZ.
The government last year borrowed heavily from the central bank mainly for grain imports against a backdrop of declining agricultural production in combination with erratic rains as well as for fuel imports, implying that cash from the central bank was used again to buy foreign currency.
Although the government projected that the budget deficit out-turn for 2005 had been 3% of GDP, the IMF board revealed that it was in fact 60% of GDP.
Analysts said this emphasised Zimbabwe’s economic crisis was far worse than projected by government statistics, warning also that this made the challenge to turn-around the country’s economy significantly more difficult.
While the misery endured by Zimbabweans provide ample proof of the threat of large-scale money printing on people’s livelihoods, the government appears indifferent.
Zimbabwe has experienced a major humanitarian emergency due to the deteriorating economy, immense policy constraints, and devastating effects of HIV/Aids since the crisis set in the economy in 2000.
Economists say “structural unemployment” is nearly 80% in an economy that has been dominated by critical foreign currency and fuel shortages as well as shortages of basic food commodities for the past six years.
In any case, Zimbabwe’s business sector has faced serious problems ranging from high borrowing rates and operational costs, shortages of fuel and foreign currency to import spares and equipment, forcing them to reduce the size of their workforce or simply shut down. Most companies are said to be operating at below 50% of capacity.
Persistent high inflation rates have also created pressure on businesses, with disposable incomes shrinking, prompting demands for higher wage increases.
The Central Statistical Office, a government department under the Ministry of Finance, has put a realistic minimum wage level for a family of five at nearly $35 million for March.
The Zimbabwe Congress of Trade Unions says the average wage in Zimbabwe for many employers stood at $5 million per month by March.
President Robert Mugabe earlier this year pledged to print more money, arguing that government could not watch while people starve.
But printing notes will neither improve the production of goods nor generate foreign currency for essential imports.
The recent award of unbudgeted salary increases to civil servants provides an insight into the government’s thinking on the issue.
Large-scale money printing propels high inflation, which is the equivalent of a drastic loss of the purchasing power of money.
This is exactly what the latest round of salary hikes will do to the country’s economy, making it unattractive to hold the local currency when costs for goods and services go up almost every day.
What this means is that rather than saving, people are now making sure they spend their little incomes as fast as they can, on goods.
The population, in order to avoid the inflationary effect, flees the domestic currency as a store of value, and instead shifts their wealth into hard currency and durable goods.