Zimbabwe economic crisis seen worsening

HARARE – Zimbabwe has predicted its economy will grow for the first time in years with inflation easing, but analysts say the government appears unable to arrest an economic crisis increasingly fuelling political tensions.

The country is in the grip of a deep recession, largely blamed on President Robert Mugabe and dramatised by the world’s highest inflation, rising poverty, unemployment above 80 per cent and shortages of foreign currency to food. But Finance Minister Herbert Murerwa said on Thursday the economy had turned a corner, forecasting growth of 0,5 to 1,0 per cent in 2007 after a 2,5 per cent decline this year.Inflation would ease to 350 to 400 per cent next year and fall below 10 per cent by December 2008, he said.It measured 1 070,2 per cent in October.The turnaround was premised on an expected rebound in agriculture, improved mining performance and more tourists.Analysts disagree, saying the worst is yet to come.”The forecast on inflation is highly optimistic …there will be huge price increases next year,” said Anthony Hawkins, professor of Business Studies at the University of Zimbabwe.”We could as well be looking at 2 000 per cent inflation.”Analysts, including the International Monetary Fund (IMF), have urged the government to address fundamental structural problems, including respecting private property rights and easing foreign currency controls which have worsened shortages and driven a thriving black market.They say the government should curb excessive spending and quasi-fiscal activities, which Murerwa promised to stop in a move viewed as an attempt to placate the IMF.The central bank has this year spent US$1,2 billion in bailing state firms, municipalities and state departments.A third of the money would be absorbed in the 2006 budget, raising the deficit gap to 18,7 per cent of GDP, from 5 per cent last year.”Such quasi-fiscal expenditures have risen to levels that are now undermining our turnaround efforts by systematically increasing the growth of money supply and therefore fuelling inflation,” Murerwa said in the budget presentation.Mugabe’s government now relies on the domestic bank sector to raise funds to plug gaps in the national budget after being shunned by international donors over policy differences, like the seizure of white-owned farms for blacks.A freeze on funding by foreign lenders has left Harare nursing external arrears of US$2,2 billion.Murerwa increased the rate at which workers started paying tax to Z$100 000 in a bid to cheer restive workers but analysts said this was below the official poverty datum line of Z$170 000 and would soon be eroded by inflation.”Zimbabweans should brace for tough times ahead.I get the feeling the government is not serious in addressing the crisis, this was a non event,” James Jowa, a Harare based economist, said.Murerwa seemed to leave it all in God’s hands.”Though outwardly we are wasting away, yet inwardly we are being renewed day by day.For our light and momentary troubles are achieving for us an eternal glory that far outweighs them all,” Murerwa said quoting a verse from the Bible.Nampa-ReutersBut Finance Minister Herbert Murerwa said on Thursday the economy had turned a corner, forecasting growth of 0,5 to 1,0 per cent in 2007 after a 2,5 per cent decline this year.Inflation would ease to 350 to 400 per cent next year and fall below 10 per cent by December 2008, he said.It measured 1 070,2 per cent in October.The turnaround was premised on an expected rebound in agriculture, improved mining performance and more tourists.Analysts disagree, saying the worst is yet to come.”The forecast on inflation is highly optimistic …there will be huge price increases next year,” said Anthony Hawkins, professor of Business Studies at the University of Zimbabwe.”We could as well be looking at 2 000 per cent inflation.”Analysts, including the International Monetary Fund (IMF), have urged the government to address fundamental structural problems, including respecting private property rights and easing foreign currency controls which have worsened shortages and driven a thriving black market.They say the government should curb excessive spending and quasi-fiscal activities, which Murerwa promised to stop in a move viewed as an attempt to placate the IMF.The central bank has this year spent US$1,2 billion in bailing state firms, municipalities and state departments.A third of the money would be absorbed in the 2006 budget, raising the deficit gap to 18,7 per cent of GDP, from 5 per cent last year.”Such quasi-fiscal expenditures have risen to levels that are now undermining our turnaround efforts by systematically increasing the growth of money supply and therefore fuelling inflation,” Murerwa said in the budget presentation.Mugabe’s government now relies on the domestic bank sector to raise funds to plug gaps in the national budget after being shunned by international donors over policy differences, like the seizure of white-owned farms for blacks.A freeze on funding by foreign lenders has left Harare nursing external arrears of US$2,2 billion.Murerwa increased the rate at which workers started paying tax to Z$100 000 in a bid to cheer restive workers but analysts said this was below the official poverty datum line of Z$170 000 and would soon be eroded by inflation.”Zimbabweans should brace for tough times ahead.I get the feeling the government is not serious in addressing the crisis, this was a non event,” James Jowa, a Harare based economist, said.Murerwa seemed to leave it all in God’s hands.”Though outwardly we are wasting away, yet inwardly we are being renewed day by day.For our light and momentary troubles are achieving for us an eternal glory that far outweighs them all,” Murerwa said quoting a verse from the Bible.Nampa-Reuters