Zimbabwe forecasts an end to six-year recession in 2006

JOHANNESBURG – Zimbabwe’s central bank governor, Gideon Gono, who has slashed inflation by a quarter since coming to office in November, forecast the country’s six-year recession would end in 2006 as falling interest rates boosted corporate investment.

The economy would contract about 4.5 per cent this year, compared with 13.2 per cent last year, Gono said last week, and hoped to slow annual inflation to near single digits next year, from 449 per cent last month. Gono has slowed inflation from a record 623 percent in January by raising interest rates and halting the six-year slide in the Zimbabwean dollar.He aims to return the country to growth by offering concessionary interest rates of 30 per cent to companies for investment, while consumers pay 120 per cent at present.”We have managed to find a working formula,” Gono said.Gono allowed the overnight interbank lending rate to jump as high as 900 per cent in December from 50 percent when he took over, crimping spending and slowing inflation.But Standard Bank economist Robert Bunyi said, “Achieving single-digit inflation could damage the economy because it would be too restrictive too quickly.”The economy had shrunk by 30 per cent in five years, according to the International Monetary Fund, after President Robert Mugabe intervened in the Democratic Republic of Congo war and seized farms for redistribution.Farm production has slumped, leaving as many as six million Zimbabweans at times dependent on food aid.The Economist magazine described Zimbabwe’s as the world’s fastest-declining economy.”We are hoping to wipe out this negative growth in 2005 with positive growth starting in 2006,” Gono said.On the land issue, Gono said the bank was focusing its efforts on getting the new black farmers to use the farms productively.”What has happened, has happened.We would like to adopt a forward-looking posture, which begins to address issues of productivity.”Gono abolished the fixed exchange rate system, replacing it with twice-weekly currency auctions, ending the black market.The currency currently trades at 5 346.17 to the US dollar, after reaching a record 10 000 on the black market last year.Rising commodity prices and increased remittances from about 3.4 million Zimbabweans working abroad have helped halt the slide in the local unit.Foreign exchange inflows in the first three months reached US$383 million (R2.484 billion), more than the US$333 million realised in the whole of last year, Gono said.”We recognise the infancy of our turnaround.But we believe that where we demonstrate consistency in policy implementation… there is always capital that will come our way.”- Nampa-ReutersGono has slowed inflation from a record 623 percent in January by raising interest rates and halting the six-year slide in the Zimbabwean dollar.He aims to return the country to growth by offering concessionary interest rates of 30 per cent to companies for investment, while consumers pay 120 per cent at present.”We have managed to find a working formula,” Gono said.Gono allowed the overnight interbank lending rate to jump as high as 900 per cent in December from 50 percent when he took over, crimping spending and slowing inflation.But Standard Bank economist Robert Bunyi said, “Achieving single-digit inflation could damage the economy because it would be too restrictive too quickly.”The economy had shrunk by 30 per cent in five years, according to the International Monetary Fund, after President Robert Mugabe intervened in the Democratic Republic of Congo war and seized farms for redistribution.Farm production has slumped, leaving as many as six million Zimbabweans at times dependent on food aid.The Economist magazine described Zimbabwe’s as the world’s fastest-declining economy.”We are hoping to wipe out this negative growth in 2005 with positive growth starting in 2006,” Gono said.On the land issue, Gono said the bank was focusing its efforts on getting the new black farmers to use the farms productively.”What has happened, has happened.We would like to adopt a forward-looking posture, which begins to address issues of productivity.”Gono abolished the fixed exchange rate system, replacing it with twice-weekly currency auctions, ending the black market.The currency currently trades at 5 346.17 to the US dollar, after reaching a record 10 000 on the black market last year.Rising commodity prices and increased remittances from about 3.4 million Zimbabweans working abroad have helped halt the slide in the local unit.Foreign exchange inflows in the first three months reached US$383 million (R2.484 billion), more than the US$333 million realised in the whole of last year, Gono said.”We recognise the infancy of our turnaround.But we believe that where we demonstrate consistency in policy implementation… there is always capital that will come our way.”- Nampa-Reuters