by Chengetai Madziwa – SANF 04 no 69
Zimbabwe’s economic successes achieved during the first half of the year point to a country fast recovering from the severe downturn experienced over the last five years. Challenges however, remain if the country is to completely turn the corner and reclaim its place as one of southern Africa’s economic giants.
Reserve Bank of Zimbabwe Governor, Gideon Gono, said that, “The first six months of 2004 were marked with considerable progress and very encouraging developments…”
Announcing his monetary policy review on 27 July, Gono enumerated several successes including a marked downward trend on inflation, increased formal foreign currency inflows, improved capacity utilisation in manufacturing, considerable stabilisation of energy supply and the painful but largely stabilising financial sector clean-up campaign.
The reduction of inflation this year, from a peak of 623 percent in January to 395 percent in July, is one of the most notable achievements largely attributed to the ingenuity of Gono, appointed central bank governor late last year. The central bank targets an inflation rate of less than 200 percent by December 2004, achievable if the current trend continues.
The central bank is commented for mopping up excess liquidity on the market, clamping down on profiteering especially in the financial sector and general speculative behaviour.
The downward trend on inflation has also been made possible through improved fiscal discipline. Reflecting on this, Acting Minister of Finance and Development, Herbert Murerwa, announced that the government had met and even surpassed most of its revenue and expenditure targets, which has helped to consolidate efforts towards curbing inflation.
On foreign currency, improved inflows have been attributed to the increased discipline by exporters and Zimbabweans in the Diaspora who are now channeling forex earnings through official means, as well as a rise in general business confidence in the country, lack of which was fuelling speculative behaviour.
Inflows of foreign currency have increased by 385 percent between December 2003 and July this year. The optimal distribution of this foreign currency to the productive sector and for procurement of fuel and electricity, through the forex auction system introduced in January, has facilitated improved production in the country.
Better access to foreign currency has also allowed manufacturers to import raw materials and machinery, which has in turn seen increased capacity utilisation in the manufacturing sector. Manufacturing capacity had declined to its lowest levels in 2003 but has within the first six months of this year been revamped by 60 to 70 percent of normal levels.
“There is still room to improve to 100 percent, which is our target by June 2005,” said Gono.
The improvement in the manufacturing sector has resulted in increased availability of basic commodities such as bread, sugar, cooking oil and maize meal, which were in short supply last year. The goods are now available in most retail shops across the country, albeit at prices often hardly affordable to ordinary citizens whose disposable income is eroded by inflation, which is still unsustainably high.
In his fiscal policy review on 26 July, the acting finance minister announced tax breaks, which include pushing the monthly pay-as-you-earn tax threshold from approximately US$40 to US$140 with effect from 1 September 2004.
With these positive achievements to build on, the task ahead is to curb inflation to the Southern African Development Community (SADC) target of single digit levels, necessary to sustain growth and development.
Other immediate challenges are to completely eradicate the parallel market foreign exchange, a vice that is denying the economy the much-needed resource. The central bank has said it will soon introduce a separate forex auction facility to cater for individual needs such as school fees payments for students outside the country.
New measures to improve forex inflows also include various investment opportunities for Zimbabweans in the Diaspora, as well as relaxed remittance restrictions to attract foreign direct investment.
With the International Monetary Fund (IMF) suspending its decision to expel Zimbabwe for six months to year-end, many now believe the country’s turnaround programme is not an impossible task. (SARDC)
