Dumisani Muleya/Shakeman Mugari
THE International Monetary Fund (IMF) warns that Zimbabwe’s economy will shrink by 7% this year against official forecasts of a 2% recovery.
The IMF, whic
h was in the country for two weeks last month to assess the economic situation, said on top of the 7% contraction after a 4% decline last year, and 10,5% negative growth in 2003, inflation would notch 400% in December.
As if to confirm this worrying prospect, official figures released this week showed inflation galloped from 265% in August to 360% last month.
The IMF projected a widening of the fiscal deficit which would fuel money growth, pushing inflation to over 400%. It said although monetary policy had tightened, this has not been consistent .
It said the fiscal deficit would widen substantially in 2005 to 11,5% of gross domestic product (GDP), from 4,7% in 2004, due to greater spending. While much of this increase was due to higher interest payments, the primary deficit (excluding interest payments), is also projected to increase by almost 2,5% of GDP.
This expansion is due to a sharp increase in the government wage bill from 15,5% of GDP in 2004 to about 20% in 2005.
With President Robert Mugabe locked in his own succession crisis, government is barely doing anything to reverse the damage caused by his regime’s failed policies.
The ruling Zanu PF is grappling with Mugabe’s succession struggle.
Zanu PF is trying to postpone the 2008 presidential election to 2010 on the pretext of harmonising the parliamentary and presidential polls when in fact it wants to extend its rule through the backdoor while grooming Mugabe’s successor.
Analysts say the situation is worsened by the emergence of a clique of securocrats holding the reins behind the scenes. Last week it emerged that Zimbabwe’s state security agents engineered the disastrous Operation Murambatsvina in which thousands of homes and informal businesses were destroyed in the name of an urban clean-up.
Analysts say, if true, this shows Mugabe is now hostage to his increasingly bold security apparatus — army, intelligence and police — which is pulling the strings.
There is also a risk the country will become even more repressive as the economic and political situation deteriorates. The diplomatic disengagement by South Africa and the international community offers further room for Mugabe to ratchet up repression.
The IMF said key macroeconomic fundamentals would be skewed further. Entrenched structural and administrative distortions in the economy remain unattended to and this will prevent economic recovery.
The IMF projections should provide a sobering reality check for delusional government spin-doctors always keen to mislead the nation on the state of the economy.
The IMF report is also a serious indictment of central bank governor Gideon Gono who, against all rational economic forecasts, initially predicted the economy would grow by 5% this year. Gono later revised his forecast to between 3,5% and 5%, before further climbing down to a 2%-2,5% growth.
Gono is still clinging to his snake-oil prediction that inflation will come down to between 50% and 80% in December when every literate citizen can see it is practically impossible to achieve that — except by gross manipulation of figures.
Analysts say it is high time Gono and his team cast away their ostrich mentality and faced up to reality.
“Gono has done his best but the problem is mainly the politics,” one banker said. “However, he is also sometimes naïve because he allows himself to be used for electoral agendas, only to be left alone on the economic frontline.”
“The other problem is he seems to understand more of business management than economics. He is a very good business manager, but has no clue at all about economics.”
Analysts have wondered how an economy can grow when all its major sectors — agriculture, mining and manufacturing — are shrinking in real terms.
Only last week, Zimbabwe’s sole tyre manufacturing company, Dunlop, shut down due to foreign exchange shortages, throwing 820 workers on to the streets.
MD Phil Whitehead was quoted as saying: “We stopped production last week, and workers are at home. This is a huge disaster. You cannot run an economy without tyres.”
Dunlop is one of hundreds of companies that have closed down in the past five years. There are other factors showing the economy is fast vanishing down the tubes.
In addition, a new wave of farm invasions is sweeping the country.
The Commercial Farmers Union said last week that government had ordered 25 of the few remaining whites farmers in Manicaland to vacate their land by the end of this month.
The picture from other economic indicators is equally grim. Apart from the rise in inflation, which is marching on unchallenged, problems in agriculture, the mainstay of the economy, foreign exchange shortages, particularly for fuel imports and other essentials, will cause real GDP contraction, ensuring Zimbabwe’s economy continues to be the fastest shrinking in the world.
Economic analyst Eric Bloch said the IMF report merely spelt out the reality that government has been trying to dodge for the past five years.
“History has shown that government is hostile to external criticism and they might just react in the same way to the IMF report. They may just ignore it, but at their own peril,” Bloch said.
“The reality is we have to genuinely restore agricultural productivity, cut the huge government expenditure, curb corruption and restore our international relations, before we can dream of an economic recovery.”
Zimbabwe already has the highest inflation and the weakest currency in the world.
A World Bank director Hartwig Schafer recently said he had never seen an economy withering at such a pace outside a war zone as the Zimbabwean one.
“I can’t think of a country that has experienced such a decline in peace time,” Schafer said. “The major reasons for this decline are the breakdown of agricultural productivity and distortion of economic policies.”
Zimbabwe National Chamber of Commerce president Luxon Zembe said while the IMF report was damaging, it was also true. He said the attitude of politicians was still the problem.
“Most of our politicians are still in a denial phase. They want us to believe that everyone is wrong and they are the only ones who are correct,” Zembe said.
“For example, there are still people invading farms at a time when we need every farmer to be working to produce for the country. We are planning a Senate election when the country is broke. These are the kind of things which are undermining the economy.”