Zim reaches ‘tipping point’ as inflation is blacked out  - Zimbabwe Situation

Zim reaches ‘tipping point’ as inflation is blacked out 

Source: Zim reaches ‘tipping point’ as inflation is blacked out – The Zimbabwe Independent August 9, 2019

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ZIMBABWE’S Finance minister Mthuli Ncube responded to the country’s worsening economic crisis last week by blacking out inflation statistics for the next six months, boosting the price of the little power that’s available five-fold and admitting what the International Monetary Fund told him in April: the economy will contract for the first time since 2008.

By Antony Sguazzin, Prinesha Naidoo and Ray Ndlovu

At the same time he spoke of fiscal surpluses and plans to abolish a requirement for local control for projects in the key platinum industry. This all happened in a country with daily power cuts of up to 18 hours and shortages of everything from bread to motor fuel. People are receiving food aid in cities for the first time and a drought has necessitated the import of hundreds of thousands of tons of corn.

When Robert Mugabe was ousted after four decades in power in late 2017 his replacement, Emmerson Mnangagwa, promised economic regeneration and declared that Zimbabwe is “open for business.” Instead things have gone from bad to worse with the effects of rapidly expanding money supply through the sale of Treasury bills under Mugabe’s rule coming home to roost and this year’s outlawing of the US dollar in favour of a local quasi currency that can’t be traded outside the country causing panic.

“Zimbabwe is at a tipping point and if it falls over the edge it’s going to be quite a long way in coming back,” Derek Matyszak, a Zimbabwe-based research consultant for South Africa’s Institute for Security Studies, said. “The wheels are falling off. There is no way out of a Ponzi scheme other than a massive infusion of cash to pay off your creditors.”

The country with the world’s highest inflation rate after Venezuela also suspended annual consumer-price data for the next six months. The authorities need to collect comparable data since the introduction of the new currency in February. That marked a return to 2009, when the country abandoned the Zimbabwe dollar in favour of the US dollar and other currencies after inflation surged to an estimated 500 billion percent.

If the more commonly used black-market exchange rate is used, Zimbabwe’s annual inflation is currently 558%, about three times the official rate, while Venezuela’s is 35,004%, according to Steve H Hanke, a professor of applied economics at the Johns Hopkins University in Baltimore.

Scrapping the official annual rate is “no real loss from an analytical perspective,” said Jee-A van der Linde, an economist at NKC African Economics in Paarl, South Africa. “These elevated inflation readings did little more than create panic and damage what little confidence was left.”

Still, the decision evokes other countries in crisis. Venezuela halted publication of inflation data and while it periodically releases figures, it isn’t operating on a regular schedule. In 2013, Argentina was censured by the IMF for tampering with its data.

A de-linking of the country’s quasi-currencies from parity with the US dollar in February and the re-imposition of the Zimbabwe dollar overnight in June has fuelled depreciation with the currency officially trading at 9,28 to the dollar on August 2. The black-market rate was 10,8, according to marketwatch.co.zw, a website run by analysts.

“The Achilles heel is the introduction of the new currency to the exclusion of the dollar,” he said. “They have decided to go in the completely opposite direction and claimed it’s the best thing since sliced bread and it’s going to be an absolute disaster.”

While the cost of basic services has climbed 400% this year, pay rises have been around 10%, Japhet Moyo, secretary-general of the Zimbabwe Congress of Trade Unions, which has 130 000 members, says.

Ncube tried to highlight the country’s first positive current-account balance in a decade as a sign of progress.

Since his appointment last year, the government has sold only marginal amounts of Treasury Bills. And earlier this year, he forecast that month-on-month inflation, which surged to 39,3% in June, would be close to zero by year-end.

The fundamental problem is that the government has failed to attract significant investment and hasn’t substantially changed the policies of the Mugabe era, John Robertson, an independent economist in Harare, the capital, said.

“People are very angry” and even though a quarter of the population has already emigrated, more may follow, Matyszak said.

“The Zimbabwe I once loved has become a cemetery for my son’s future” said Ashley Randen, an unemployed single mother of a 12-year-old boy in Harare. — Bloomberg.

COMMENTS

WORDPRESS: 2
  • comment-avatar
    ace mukadota 2 months ago

    February 1, 2019 – RTGS 1 equal to USD 1.
    Today 10 August RTGS 9.80 equal to 1 USD – Reserve Bank of ZW official rate.
    So new Zimbabwe dollar or RTGS has lost over 90 per cent of its value in that short time.
    No such thing as a tipping point – things will just continue to get worse. And as former strongman comrade robert g ‘matabili’ mugabe PhD said – countries do not go bust.
    So big question is – where does the RTGS go next ? – i reckon maybe down comrades.
    So keep your USD under your bed or in your own pocket. Never trust a bank in ZW again – twice bitten you need to wake up to ZANUPF tactics of economics

  • comment-avatar
    Mukanya 2 months ago

    Back to the Mugabe’s Zanunised Zimbabwean economy of the 2000-2008 Era!!