RESERVE Bank of Zimbabwe governor Gideon Gono is battling to keep his monetary policy on target at a time when government is spending money on maize imports and an enlarged cabinet.
A combination of skewed economic fundamentals and the ongoing political crisis have forced Gono to make major changes to his initial policies.
According to bankers he spoke to two weeks ago, he wants to raise interest rates, revise inflation targets and slash the foreign currency earnings forecast to bring it closer to the reality he has been dodging since his appointment in 2003. Sources say he also wants to panelbeat his roadmap to fit an economy that has been battered by drought and fuel shortages.
Zimbabwe needs to raise US$818 million to avert looming hunger which government blames on drought. Grain imports will be financed by diverting $5 trillion initially earmarked for infrastructural development. The urgent need for grain money requires Gono to revise his US$3 billion foreign currency earnings target that he set last year.
Experts say he will have to draw up a new roadmap after his initial plans were thrown into disarray by the drought and economic problems that are refusing to go away despite official claims.
Economist David Mupamhadzi said the governor would have to change the whole picture because his initial vision was based on the assumption that there would be no drought. He said all projections would have to be changed to factor in the impact of the drought which he said was devastating.
“The central bank and government would have to change all the assumptions they had used to calculate growth rate, GDP prospects and inflation targets,” Mupamhadzi said.
“Initial targets were based on the assumption that everything would be normal but now things have changed.”
Gono is also expected to devalue the Zimbabwe dollar to narrow the widening gap between the galloping parallel and the official auction rates. Sources say Gono is likely to devalue the dollar from the current $6 200/US$1 to around $9 000/US$1 to save the exporting sector and entice the forex holders to channel their money into the official market.
There was information last week that Gono had wanted to slash the dollar value to $12 000/US$1 had it not been for a cabinet directive to peg it at $9 000.
Experts however say the devaluation might be too little too late to stop the black market which has seen the Zimbabwe dollar trading at a high of $17 500 against the greenback and around $35 000 to the pound. Despite his commitment to revive the export sector, the reality on the ground shows that there has been very little business to justify his US$3 billion projection he said the country would earn this year. Exporters are reeling from an over-valued local currency.
Fuel shortages and power cuts that have hit the country will also impact negatively on the manufacturing sector that Gono had said would form part of the measures to revive the economy. Capacity utilisation in the key industry is likely to slump due to energy and fuel shortages. Currently the sector is operating at around 40% with other companies having shut down completely.
Zimbabwe is failing to raise US$34 million required to import fuel per month. It has also been battling to raise the US$17 million required for a month’s supply of power imports.
Analysts say the governor’s biggest challenge is to put a stopper on government’s expenditure that will be compounded by an enlarged cabinet. They say this will further strain the treasury whose books are already full of holes.
Runaway spending has seen government accumulating massive debts over the past five years. The Reserve Bank of Zimbabwe says government’s domestic debt jumped to $7,9 trillion on April 15 from $2,3 trillion as of February 18. In January 2004, domestic debt stood at $576 billion. This is despite Gono’s claims that government has been spending within its means.