ZIMBABWE’S opposition Movement for Democratic Change and the International Monetary Fund (IMF) have said Reserve Bank governor Gideon Gono’s economic reforms fall far short of what is needed to tu
rn around the economy.
MDC secretary for economic affairs, Tendai Biti, said a cursory analysis of Gono’s monetary policy statement exposed an extremely gloomy picture of what was going on in the economy.
“The governor has made his main platform the reduction of inflation,” Biti said. “In this, the official annual figures show a large degree of improvement from 622,8% in January to 394,6% in June. However, this decline still implies prices in June 2004 being five times prices in June 2003, and most consumers feel that even these startling increases in the official CSO (Central Statistical Office) basket of goods do not reflect the actual price increases they have had to face in their day-to-day lives.”
The International Monetary Fund (IMF) board last week expressed “grave concern over the continued and sharp decline in economic and social conditions”, noting that GDP had fallen 30% over the past five years and will decline a further 4-5% this year. The IMF noted that although inflation had slowed dramatically from 622% in January to 395%, “unemployment is very high and increasing, social indicators, which were once among the best in Africa, have worsened, and the widespread HIV/Aids pandemic remains largely unchecked”.
“Severe food shortages have necessitated massive food imports and donor assistance,” which the IMF board blames on “inappropriate macro-economic policies and structural changes”.
In particular, it says, “the disorderly implementation of the land reform programme has contributed to a sharp reduction in agricultural production. Concerns about governance and human rights, and the continued lack of clarity about property rights have severely damaged confidence, discouraged investment and promoted capital flight and emigration.”
The IMF said there would be no international support for theZimbabwe government until far-reaching economic and policy reforms were put in place.
Analysts say Gono is tinkering at the edges of the problem and even his well-meant reforms are starting to unravel. Month-on-month inflation, which slowed to 4,8% in April, shot up to 9,2% in June. And although Gono was likely to reach his year-on-year inflation target of 200% by December, the signs are that inflation will rise again in the first half of next year.
“Looking at the Reserve Bank’s figures for reserve money, which is an indicator of underlying inflationary pressures, the latest figures for May 2004 show a 900% increase over May 2003,” Biti said. “A resurgence in inflation is certainly in prospect.”
MDC economic adviser Eddie Cross said the RBZ last month only managed to meet a paltry 31% of foreign-exchange demand at its twice-weekly auctions. The auction rate has been raised marginally from $5 350 to $5 600 against the US dollar and Gono has remained adamant that he will not devalue despite distress calls from exporters. Exporters are warning that they cannot continue without further devaluation or new export incentives. Bankers expect Gono to announce devaluation – to at least $8 000 against the greenback – within the next few weeks. Cross said money supply figures and especially the recent surge in lending to troubled banks would unleash a huge inflationary surge next year.
“At the end of May loans to banks were $2,8 trillion – or more than 12% of GDP – while money supply was expanding at about 450%,” Cross said. “On the Zimbabwe Stock Exchange share prices have more than doubled in little more than six weeks as investors have concluded that the RBZ is not going to allow interest rates to rise. Investors are shunning money market investments that yield well below inflation and are piling into the stock market, just as they did during the hyperinflationary boom a year ago.”
Analysts argue that Gono dare not raise interest rates because troubled banks are at risk while the cost of servicing the government’s domestic debt, currently $1,8 trillion or 8% of GDP, would bust the budget.
The UN Industrial Development Organisation’s Industrial Deve-lopment Report for 2004, published this month, paints a grim picture of how much Zimbabwe has deindustrialised in recent years, slipping 20 places down its compe-titive industrial performance index.
The UN Development Program-me’s Human Development Report shows that Zimbabwe has slipped down that league table, too, so that its human development index is lower now than in the mid-1970s. Above all, the African Union’s damning report on the flawed 2002 presidential election and the country’s atrocious human rights record sustain the IMF’s assessment that Gono’s reforms fall far short of what is needed to turn the country around.