Zimbabwe is sliding into deflation due to shrinking economic activity and urgently needs fresh foreign capital to stimulate growth, a senior banking official told Parliamentarians on Monday.
Inflation is expected to end the year at 1.5 percent but the rate is seen much lower after it fell to 0.54 percent in November against projections of five percent this year due to falling economic activity and tight liquidity which has seen industrial capacity utilisation drop to just over a third from 55 percent a year ago.
“We face quite some prolonged depression going forward in the economy and it can deepen,” Agribank director, Joseph Mverecha told Members of Parliament attending a post-budget seminar at a Harare hotel.
Over the past year, month on month inflation averaged zero and slipped into the negative in the last five months, he said.
“If you extrapolate going forward by February or March at the latest, the year on year inflation should be negative,” he said, adding that it would then be difficult for the country to come out of deflation, citing Japan which has been in depression for over 15 years despite advantages such as trade and current account surpluses which Zimbabwe does not have.
Mverecha said the country needed to deal with its external debt overhang to enable it to access fresh international capital.
“The first step we need to take is to address key challenges against the background of sanctions. We need a lot of fresh capital,” he said.
“We need to make a commitment to address the core structural challenges and not to deal with symptoms.”