DESPITE efforts to resuscitate the economy through tight monetary and fiscal policies, the country is still facing serious economic challenges, companies’ representative body Zimbabwe Nati
onal Chamber of Commerce (ZNCC) said.
“The country is experiencing economic challenges characterised by negative growth rate, high inflation, shortages, high unemployment, depressed demand and low investment levels among others,” Innocent Makwiramiti, the chief executive officer of ZNCC, said.
He said that fiscal policy is under the threat of high debt levels as the government debt is now around $8 trillion while the external debt is over $3 trillion.
“Total debt is above $11 trillion which is more than the country’s gross domestic product (GDP). This combined with the bloated civil service will put a strain on the fiscus, implying that it will take time for the economic fundamentals to stabilise.”
Makwiramiti added that the increase in interest rates from 110% to 160% per annum will increase the cost of borrowing to the business sector to around 200% per annum, negatively impacting on the operations of most companies notwithstanding the concessional rate of 5% given to exporters.
“The rise in interest rates will be inflationary as the costs will be passed on to the consumers,” he said.
He said the real sector, which includes manufacturing, mining, construction and tourism, is currently operating at capacity levels of below 60% due to foreign currency shortages.
The shortage of foreign currency is crippling industry with the foreign currency auction only raising US$11 million a week, which is way below the required amount of more than US$100 million.
On a comparative basis, the first four months of 2005 performed marginally lower than the same period in 2004 in terms of total formal market inflows of foreign currency.
Foreign currency inflows during the period January to April amounted to US$385,7 million as compared to a total of US$448,6 million received over the same period in 2004.
The disparity between the official exchange rate and parallel market rate continues to widen despite the recent devaluation of the dollar by the Reserve Bank of Zimbabwe (RBZ).
On the foreign currency auction, the US dollar is trading at US$1:$9 000 and the British pound at £1: $17 000 while on the parallel market the US dollar is trading at about US$1:$25 000 and the British pound at £1:$40 000.
On the other hand, according to statistics from the Zimbabwe Tourism Authority (ZTA), the tourism sector slumped by 18% last year contrary to official claims that the sector is coming out of the woods.
“Other factors include price controls, shortages of water and electricity, corruption, indiscipline and poor leadership.”
Makwiramiti added that the agricultural sector, which is the backbone of Zimbabwe’s economy and is expected to spearhead economic recovery, has been hard-hit by drought, shortage of inputs, poor planning, corruption and indiscipline.
“The projected growth rate of 28% is likely not to take place,” he said.
Agriculture accounts for about 60% of the manufacturing sector’s input requirements.
However, Makwiramiti said in 2004 there were some notable achievements like revenue collections surpassing targets, the budget deficit being contained within target, the asset bubble slowing down and the reduction in inflation from a record 622,8% to 132,7% by December 2004.
The ZNCC is holding its annual congress at Lake View Inn in Kariba from June 29 to July 1.
The theme of the congress is “Breaking Barriers — Turning Economic and Business Dreams into Reality”.