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Gono admits policy failure

Shakeman Mugari/Dumisani Muleya

RESERVE Bank governor Gideon Gono yesterday for the first time all but admitted failure in his war against unrelenting economic decline.

erdana, Arial, Helvetica, sans-serif”>Putting on a brave face as usual and again claiming “failure was not an option”, Gono admitted in the central thrust of his lacklustre monetary policy statement that economic fundamentals have further deteriorated since his July presentation.

While maintaining his derailed economic recovery programme was on track, Gono did not come up with a viable reconstruction model but clung to the failed plan.

He acknowledged he was losing the battle against inflation – described as “enemy number one” even though government’s policy failures are evidently the major problem – by revising his forecast for December to a range of 280%-300%.

His previous forecast had been for between 50% and 80%.

He said inflation was now expected to fall within the 50%-80% range by December next year. Analysts have described Gono’s initial projection as “clearly delusional”.

The International Monetary Fund (IMF) said recently Zimbabwe’s inflation will top 400% in December. Under Gono’s tenure, Zimbabwe has achieved the dubious distinction of having the highest inflation and the weakest currency in the world.

In a further admission of failure, Gono said a new currency would be introduced in 2006. The move is usually associated with failed economies.

Brazil, the former Yugoslavia and the Democratic Republic of Congo have changed currency in the recent past in the midst of economic failure.

The IMF said the economy would shrink by 7% after a 4% decline last year, and 10,5% negative growth in 2003. Zimbabwe’s economy has contracted by a cumulative 30% over the past five years.

Gono did not make a GDP projection but said regional economies grew by 4,8% last year compared to 3,6% in 2003. In July he claimed the economy would grow this year by between 2%-2,5% after climbing down from a 5% growth forecast.

The IMF projected a widening of the fiscal deficit, which will fuel money growth, pushing inflation upwards. It said although monetary policy had tightened, it has not been consistent.

The IMF said the fiscal deficit would widen to 11,5% of GDP, from 4,7% in 2004, due to greater spending. This expansion is due to a sharp increase in the government wage bill from 15,5% of GDP in 2004 to about 20% in 2005.

Gono dumped the foreign currency auction floor for a floating system. He said the auction system would be replaced by a tradable foreign currency system in which exporters will retain 70% of their proceeds in foreign currency and the remaining 30% at the official auction exchange rate determined at the market from time to time.

The auction system failed to curb the parallel market which has flourished since Gono took over in December 2003. When Gono came in the parallel market rate was US$1: $9 000. It’s now US$1:$85 000. The official rate was US$1:$5 000 but is now US$1:$26 000.

Gono said exports were rapidly declining. This would worsen shortages in the market and lead to a further crash of the crumbling local currency.

He also adjusted the interest rate, putting it deeper into positive territory. He increased the rates from 405% to 415% for secured lending and from 415% to 430% for unsecured lending.

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