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Inside inflation, growth targets

Kudzai Kuwaza

THE Reserve Bank of Zimbabwe’s year-on-year inflation target of 50% by year-end and the government’s growth projection target of 3% in 2020 are unrealistic and wide off the mark, economic analysts and financial experts have said.

The Monetary Policy Committee (MPC) of the central bank, which was formed late last year, said in its statement after it held its fourth meeting that year-on-year inflation will be down to two digits by the end of this year, down from the current 521,1%. Government has forecast 3% growth for 2020.

“Given the bank’s key focus on price and exchange rate stability in 2020, the MPC expects the month-on-month inflation to continue decelerating and forecasts it to close the first quarter in single digit levels. The trend would see the year-on-year inflation coming down to about 50% in December,” the MPC said after its meeting.

However, financial experts have expressed serious doubts that this can be achieved given the state of the country’s economic decline characterised by a debilitating liquidity crunch, acute foreign currency and fuel shortages, low productivity and prolonged power outages. Eyebrows have been raised over government’s 3% growth rate given the fiscal pressures of having to frequently increase the salaries of civil servants whose wages have been severely eroded by inflation as well as importing food in the face of a devastating drought which will leave nearly eight million Zimbabweans facing starvation.

“The projection of year-on-year inflation coming to 50% by the end of the year is overly optimistic,” a financial expert told businessdigest. “If inflation is to be reduced, it will depend on the economy not being hit by shocks such as drought. It will also depend on the budget not being financed by excessive printing of money. There are many variables which makes projecting the inflation figures at the end of the year more of guesswork than anything else. If you had told me at the beginning of 2019 that year-on-year inflation would be at 521% at the end of the year, I would have laughed at you.”

In an interview with this paper last week, economist and CEO Africa Roundtable chairperson Oswell Binha dismissed any positive growth projections, given the parlous state of the economy.

“In the absence of credible national statistics, one is bound to thumb-suck and I am unable to (give a growth projection). However, any indicators signaling positive growth are fictitious,” he said.

In its Africa Economic Outlook 2020 Report, the African Development Bank has given positive growth projections for the country — but with a caveat.
“The economy is expected to recover with GDP growth of 4,6% in 2020 and 5,6% in 2021 if corrective measures are taken, especially to restore macro-economic stability,” the bank observes in its report.

The Economist Intelligence Unit has projected that the country’s economy will contract by almost 13%, in stark contrast to government’s 3% growth estimate. Economist John Robertson said he expects the economy to contract by 6% this year.

“We will be very lucky if we record any positive growth this year. I expect a -6% growth in 2020 with the possibility of small growth in 2021,” Robertson said. “But that growth can only be possible if we run agriculture properly, which we are not doing at the moment as farmers still cannot access loans from the banks.”

On the inflation target of 50%, Robertson said this would not be achievable if government does not get rid of the parallel forex market and fails to stabilise the exchange rate.

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