Zimbabwe needs to make ‘crucial’ policy decisions now to save the economy from sinking to worse levels than experienced during the hyperinflation period of 2008, a central bank official said on Thursday.
The country’s annual inflation reached 500 billion percent in December 2008 at the height of a political and economic crisis, forcing the government to abandon the local currency in favour of multiple foreign currencies – mainly the United States dollar and South Africa’s rand – in 2009.
Finance minister on Wednesday said Zimbabwe will demand 100 percent local control of its minerals and land under planned changes to its black economic empowerment law, which has largely blamed for keeping some foreign investors away.
Reserve Bank of Zimbabwe (RBZ) senior division chief, Simon Nyarota said the economy will sink into the negative territory in the next year if the current decline was not arrested.
“(The economy) is going to decline and it will be similar to the 2007/08 but this will be worse because we are dollarized so we do not have anything or a policy that will stabilise the economy immediately like what happened in 2009,” Nyarota told industrialists at the Confederation of Zimbabwe Industry annual meeting.
The economy is stuttering after struggling to attract investment in the aftermath of elections last July that extended President Robert Mugabe’s 33-year rule. Government predicted a 6.1 percent GDP growth in 2014, but the World Bank and the central bank have projected a 3.1 percent growth due to the underperformance of key sectors such as agriculture and mining.
Nyarota said the country debt arrears, estimated at $10 billion, were still growing due to failure to service the debt.
Coupled with lack of foreign direct investment and tight liquidity, the economic situation was deteriorating as evidenced by slumping industry capacity utilisation, company closures and retrenchments, he said.
If government and other stakeholders take the right approach, the economy has great potential, Nyarota added.
“The other route is that we take corrective action. Yes we have (the government’s five-year economic blue print) ZimAsset but everyone has to come together to make it work. We have to look at the actual causes of the decline,” he said.
Nyarota said addressing structural bottlenecks which include deteriorating infrastructure would benefit the economy.
“Once that is done, any economic blueprint can take off easily,” he said.