HomeBusiness DigestForex blues, debt threaten Zim recovery

Forex blues, debt threaten Zim recovery

DEEPENING foreign currency shortages in Zimbabwe and spiralling domestic debt threaten President Robert Mugabe’s plans to halt a long-running economic crisis, analysts said.

tica, sans-serif”>The Zimbabwe government has increasingly relied on domestic credit to fund gaping deficits in the national budget, as foreign currency shortages take their toll on the economy which has shrunk by more than a third over the last six years.

Mugabe set up a “development” cabinet after the March 31 parliamentary polls that he said would tackle the problems, but analysts said rising domestic debt and the critical foreign exchange crunch cast doubt on an expected recovery this year.

“There is a financial crunch and the government does not have enough to pay for its needs … this has repercussions for economic recovery and inflation,” said Rongai Chizema, an economist at financial services firm Intermarket Holdings.

Zimbabwe says the economy has turned the corner after six years of recession and is set to grow by up to 5% this year, on a rebound in agriculture and mining set to boost forex inflows to US$3,7 billion from $1,8 billion last year.

But analysts doubt those forecasts, as they do an official aim of reducing the annual rate of inflation to 20-25% by the end of this year from 127,2% in February. Inflation has fallen from a record peak above 600% early in 2004.

“The government forecasts on the economy look unattainable because industrial and agriculture production are lower than forecasts, which should see another GDP decline this year,” University of Zimbabwe business professor Tony Hawkins said. — Reuter.

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