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Govt borrowing causes slump in productivity

Eric Chiriga

GOVERNMENT’S decision to borrow funds from the domestic market is crowding out the private sector, resulting in falling productivity levels, property

consultants, CB Richard Ellis (CBRE), have said.

In a report on the central business district’s property market for the first quarter of 2006, CBRE said reduced production had affected exports earnings, worsening the foreign currency shortages in the country.

Government, which borrows for non-productive purposes to finance recurrent expenditure, has increased its recourse to the domestic market, swelling domestic debt to over $48 trillion in June.

“Without any technical assistance from the Bretton Woods institutions…government has resorted to financing its budget through borrowing from the banking system thereby crowding out the private sector from accessing finance for production resulting in less goods being produced,” said CBRE in the report.

The report said the immediate implication of reduced production was the country’s inability to generate adequate foreign currency required to meet its import requirements.

“Production of most goods for export entails the importation of raw materials and liquid fuels using foreign currency,” said the report.

It said foreign currency was required to acquire spare parts for refurbishing existing infrastructure.

The report further said the situation had been further worsened by the withdrawal of credit lines by foreign banks and the suspension of donor aid to the country.

“With an ever-increasing budget deficit in the face of reduced foreign currency reserves, the balance-of-payments support remains critical if the country is to attain macroeconomic stability,” the report said.

The report said as a result of these developments, the country’s gross domestic product (GDP) had experienced negative growth, while interest rates on bank lending had soared.

Since the year 2000, following the introduction the land reform programme, Zimbabwe’s GDP has been deteriorating.

GDP last year contracted by about 4,1% from 2,1% in the previous year. The report said these negative developments in the economy had led to the unprecedented depreciation of the Zimbabwe dollar against major currencies.

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