HomeBusiness DigestGono's inflation, BOP targets unattainable, economists

Gono’s inflation, BOP targets unattainable, economists

Eric Chiriga

CONTRARY to claims by the Reserve Bank of Zimbabwe’s (RBZ) governor, Gideon Gono, that the country’s balance of payments (BOP) is going to improve and that inflation will be below 300% at the en

d of the year, local economists say the targets are unattainable.

In his monetary policy for the third quarter of 2005 announced last week, Gono predicted an improvement in the BOP from a deficit of US$302,8 million to US$266,1 million.

“Based on foreign exchange supply and demand conditions, the overall balance of payments position is projected to improve from a deficit of US$302,8 million in 2004 to a lesser deficit of US$266,1 million in 2005,” Gono said.

He said the capital account was projected to improve from a deficit of US$244 million last year to a surplus of US295,7 million.

He said the inflation rate was now expected to be within a range of 280-300%.

“The upward trend of inflation is expected to slow down during the last quarter of the year, with annual inflation expected to reach levels of 280-300% by December,” Gono said.

Gono was forced to revise the annual inflation for 2005 from an initial target of 50-80%.

Economic analyst, John Robertson, said chances of the country’s BOP improving in the near future were very slim considering that the country was failing to raise enough foreign currency.

He said that even if the country successfully borrows significant amounts of foreign currency, the funds will not be accounted for as capital inflows, but used to settle the huge debts that the government has incurred.

Robertson said the governor’s inflation target of between 280-300% was too ambitious.

“Inflation rate will be at least 500% by the end of the year,” Robertson said.

Witness Chinyama, Kingdom Financial Holdings (Kingdom) group economist, said that for the country to achieve an improvement in the BOP, and an inflation target of 280-300%, the environment should be conducive.

“For an improvement to be realised in the current account, there should be an increase in export earnings,” he said.

He also said the new system of interbank trading, if implemented properly, would significantly improve exports and ultimately the current account.

“For the capital account to get better, there is need for Foreign Direct Investment (FDI) and respect for property rights.”

Chinyama said there should be investment in physical plant machinery and not finished products.

In the case of inflation, Chinyama said targeting money supply growth as the major solution to reducing inflation will not work because there were several other factors causing inflation which all needed to be addressed simultaneously.

“Targeting money supply growth only works if an increase in money supply is the main cause of inflation. The causes of inflation in Zimbabwe are broad and they include drought and lack of FDI,” he said.

In January, inflation was 133% and declined to 123,7% in March.

However, the downward trend reversed and the annual inflation rate increased to 265,1% in August and further to 359,8% in September.

Month-on-month inflation, which for the first six months of the year averaged 10%, surged to 47% in July, before receding to 33,3% in September.

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