4 May 2014

Zimbabwe: Govt in a Fix Over Economy

GOVERNMENT seems to be clueless as to how to rescue the economy in the wake of low demand for goods and services with analysts warning that more company closures are imminent.

More than six months after Zanu PF got the mandate to rule unfettered through the electoral defeat of the two MDC formations, there seems to be no end in sight to the problems bedevilling the economy.

Recent statistics from the Zimbabwe National Statistics Agency (Zim Stat) show that year on year inflation for the month of March was 0,91% shedding 0,42 percentage points on the February data as deflationary pressures persist.

This is attributed to depressed aggregate demand.

Company closures have become a daily occurrence as demand for goods and services drop while the relentless influx of cheap imports has delivered the final nail on the economic coffin.

Liquidity constraints stemming from the rising imports over exports have worsened the situation while lines of credit have remained elusive.

Finance minister Patrick Chinamasa recently told a business conference at the just-ended Zimbabwe International Conference that the debt overhang means no lender was prepared to give Zimbabwe lines of credit.

"No one wants to lend Zimbabwe money anymore because we have defaulted in the past. Whether we go to Zambia or to Malawi, it's the same thing because we are indebted to these countries. We are on our own and we have to be more innovative," he said.

Independent economist Moses Chundu said the country is in a "real squeeze" as it cannot leverage.

Chundu said the falling aggregate demand (deflation) has presented a headache for the economy.

"In the face of deflation, one stimulates aggregate demand by raising government expenditure in public works. The little that we are collecting is not even enough for recurrent expenditure," he said.

Government has had to change pay dates for the civil service recently after failing to mobilise adequate resources.

Chundu says a meeting of minds by all stakeholders would provide the solutions out of the crisis.

The government's new economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) has failed to provide solutions for the country to extricate itself out of the crisis.

Zim Asset is premised on weak assumptions. For instance, it says the economy would grow by 6,1% driven by the growth in mining, agriculture, construction and real estate as well as in financial services and tourism.

The World Bank lowered the country's growth rate to 3% this year from the 4,2% earlier projected, attributing the decline to low investment levels, among other reasons.

Economist John Robertson said government policies were further reducing the size of Zimbabwe's economy and this also makes the country an unacceptable investment destination.

"Government is inflicting structural damage on the economy's productive capacity. We have suffered greatly in the agricultural and manufacturing sectors and lately the mining sector may witness more mine closures due to the increased royalties," said Robertson.

Robertson pointed out that more young people were being churned out of universities but turning to the informal sector for employment to survive and feed themselves.

"We would not have a shortage of money if we had a good investment climate, that's the key issue. We need to make our country more attractive to investment, because investors will ask themselves 'why on earth should we invest in Zimbabwe when it behaves the way it does'?" he said.

Another local economic commentator, Takunda Mugaga contends that the political risk from a weakened opposition force can only heighten country and political risk as the "political dividends" can be damaging.

"The economy is indeed in a comatose state with a narrow capital expenditure budget expected to restrict Gross Domestic Product growth to below 2,5% annualised," he said.

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