FROM all indications, Zimbabwe is plunging into the abyss of recession, then stagflation, a condition characterised by slow economic growth, high unemployment and rapidly rising prices.
The numbers speak for themselves.
Zimbabweans, although a resilient lot and also inexplicably docile, woke up to a stark realisation this week: the dramatic erosion of purchasing power.
The price of bread skyrocketed from $2,20 to $3,50, in a development that stunned the public and heightened the general sense of despondency in the country.
This has had a direct and immediate impact on standards of living.
The International Monetary Fund (IMF), in its latest forecast, says it sees the country’s economy contracting by 5,2% against an earlier growth projection of 4,2%. The annual inflation rate for March rose 7,27 percentage points to 66,8%, according to the Zimbabwe National Statistics Agency.
The IMF forecasts Zimbabwe’s inflation to remain in double digits till the end of the year at +40%. These numbers paint a bleak picture. As any analyst knows, stagflation is the worst of both worlds. A combination of high inflation and stagnation is a deadly mix that can drag the economy into a tailspin.
Stagflation is extremely difficult to tackle; once it sets in, there is a heavy toll to pay — in both social and fiscal terms — as the turmoil caused by an unstable economy is a tough proposition for any country, even at the best of times, let alone a broke government saddled with massive debts. The consequences of hyperinflation are already clear for everyone to see. This is happening a few years after another episode of hyperinflation left a trail of destruction across the country.
In the absence of social safety nets, spare a thought for vulnerable segments of the population. Pensioners, orphans and the unemployed are among the vulnerable people at the mercy of insanely prohibitive prices.
But as inflation spirals out of control, even the formally employed are not spared. Most employers have not awarded a cost of living adjustment for years — and the majority of them cannot conceivably afford it anyway.
There are several ways in which a government can respond in a bid to lessen the impact of inflation. One of them is to ensure that exchange rates are kept in check. In Zimbabwe’s case, currency and exchange rate volatility has been a major contributing factor to the ongoing turmoil. The RTGS dollar is losing value at an alarming rate on the parallel market — a clear indication that the inter-bank forex trading platform is not yielding the required results.
President Emmerson Mnangagwa recently mocked the RTGS dollar. He may argue that his statement was made in jest, but we must all understand that the markets are sensitive. Finance minister Mthuli Ncube’s assertion, during his trip to the IMF and World Bank spring meetings in Washington DC, that Zimbabwe will soon introduce a new currency, did not help matters either.
Mnangagwa and his team must show leadership on the economy. Are they not seeing the massive storm clouds on the horizon?