Little hope for recovery as budget looms

Gift Phiri

THE government, grappling with a deep economic crisis, will offer little hope for economic recovery in its forthcoming annual budget, analysts said this week.



Verdana, Arial, Helvetica, sans-serif”>Analysts say acting Finance minister Herbert Murerwa faces the daunting task of halting the economic tailspin when he presents his 2005 budget to parliament on November 25.


Zimbabwe is currently beset by multifaceted economic problems. Half of the 12,5 million population is at risk of starvation due to food shortages widely blamed on President Robert Mugabe’s chaotic land reform programme.


But among other problems, the forthcoming budget will be premised on the fiction that Zimbabwe’s currency is trading at its official pegged rate of $5 600 to the US dollar when in fact it is trading at $8 000 to the greenback on a flourishing black market.


“With such a discrepancy between the black market and the official exchange rate you have to assume there are inflationary implications which will make nonsense of the government’s forecasts,” economic commentator Eric Bloch said.


Analysts say Murerwa, who is standing in for the jailed Chris Kuruneri, will be hard-pressed to provide solutions to economic problems.


“I believe there will be a lot of unsubstantiated claims of a recovery. They are still in denial about the conditions they have caused and I don’t believe the budget will reflect the true Zimbabwe,” John Robertson, an independent economic consultant, said.


A shortage of foreign currency, blamed on shrinking exports and dwindling injections of hard currency, has widened the disparity between the black market and the official rate.


“The spread between the official and parallel market continues to grow,” said Standard Chartered Bank in its latest monthly analysis of African markets.


“This poses a dilemma for policymakers who have thus far resisted an official devaluation for fear of stoking even more inflation.


“But as the spread widens, some kind of adjustment in the exchange rate – even if only of a small magnitude – becomes more necessary,” the bank said.


Zimbabwe’s economy shrank 7,3% last year and economists expect it to contract 5% in 2004.


Unemployment is still hovering around 70% and erratic fuel supply problems have resurfaced, forcing Mugabe to extend his begging bowl to countries such as oil-rich Equatorial Guinea for supplies, reports suggest.


“I think we will remain international beggars all the way through to 2006,” Robertson said.


Although annual inflation has slowed down to 251,5% in September from a high of nearly 623% in January, month-on-month inflation has been quickening with the figure rising to 5,9% last month from 5,3% in August, mainly due to increases in the average price of beverages, meat, fruit, vegetables and medical fees.


The central bank is certain inflation will drop to below 200% by year-end. However, economists say prices will rise faster again next year in line with a weakening Zimbabwe dollar, which makes imports expensive.


“Inflation will certainly increase early next year mainly because of exchange rate pressures and continued increases in the prices of fuel and industrial inputs,” Kingdom Holdings chief economist Witness Chinyama said.


Despite the drop, Zimbabwe’s inflation rate remains one of the highest in the world.


Zimbabwe has in recent years been in the throes of political, economic and social instability due to policy and leadership failures.


The International Monetary Fund says Zimbabwe’s economy has contracted by about 30% over the past four years and is expected to shrink by another 5% this year.