Govt’s projection on inflation a pipedream

Kudzai Kuwaza

THE increase of inflation to more than 800% for July is an indication that the government’s projection of it coming down to 300% by the end of this year, is far removed from reality.

Zimstats revealed that inflation has shot up to 837,53% for July up from 737,29%, as the country’s economic crisis deepens amid a debilitating liquidity crunch, acute fuel and foreign currency shortages, dwindling levels of foreign direct investment and low capacity utilisation.

Inflationary pressures have increased since the government introduced the Zimbabwean dollar as the sole legal tender in June last year through Statutory Instrument 142 before gradually allowing the United States dollar to be used as legal tender.

The local unit has weakened considerably against the greenback as evidenced by the rapid loss of value of incomes and pensions denominated in the Zimbabwean dollar.

Presenting the Mid-Term Budget last month, Finance minister Mthuli Ncube projected that inflation will be reduced to 300% by the end of the year.

“However, inflation is expected to gradually decline in the second half of 2020, from a peak of 785,5% in May 2020, to 300% in December 2020, responding to current monetary and fiscal policy interventions,” Ncube said.

He said this will be facilitated by the foreign currency auction system held weekly by the Reserve Bank of Zimbabwe, which enables industry to access foreign currency.

Zimbabwe National Chamber of Commerce chief executive Chris Mugaga says government’s projections are not realistic, maintaining that inflation will breach the
1 000% mark by the end of this year.

“It is not feasible that inflation will drop to 300%. It might decrease in the rate of increase but it will not come down anytime soon. I see inflation ending the year at 1 100%. That is where l see it,” Mugaga said.

He said there is a need for significant structural reforms if runaway inflation is to be tamed.

“We need a lot of structural reforms and not rely heavily on the foreign currency auction system. We need structural reforms that allow competitiveness and the easy entry and exit of capital,” Mugaga said.

Business consultant Simon Kayereka said although the foreign currency auction system has brought about some stability, it is inadequate to rein in galloping inflation.

“Government’s forecast of bringing inflation down to 300% by year end is clearly unachievable. Admittedly the auction system has brought some semblance of stability but it is not enough. The current rate of inflation is 837%.The exchange rate is also moving up from 25 at launch date to almost 83 to the greenback,” Kayereka said.

“This is against subdued demand because companies are not operating at a quarter of their capacity. There is also a huge drop in affordability as the local currency that is paid out as wages is pegged at below poverty the datum line. It is wishful thinking to suggest that inflation will come down in such a scenario.”