The stark truth: Economy dead

via The stark truth: Economy dead – The Zimbabwe Independent October 10, 2014

AFTER the recent monetary and fiscal policy review statements, the International Monetary Fund (IMF) visit and Confederation of Zimbabwe (CZI) Manufacturing Sector survey whose report was released this week, and events on the ground which shed more light on what is happening, it is clear the economy is in deep trouble.

It’s now technically in recession.

So instead of wringing our hands and engaging in obfuscation, let’s tell the stark truth: We are submerged in a sea of gloom and doom, as Industry minister Mike Bimha put it on Wednesday. Only those who are economically illiterate think otherwise.

While this is extremely worrying, the real tragedy is that government is completely at sea as to how to resolve the situation.

In his maiden monetary policy statement in August, Reserve Bank governor John Mangudya said the economy is buffeted by tight liquidity conditions, company closures, rising unemployment, low aggregate demand, falling production, non-performing loans and disproportionate trade imbalance, among other problems.

Finance minister Patrick Chinamasa last month in his mid-year fiscal policy review statement delivered bad news of continued economic tailspin and an array of further taxes on already overburdened individuals and companies amid withering criticism from his predecessor who accused him of tinkering with symptoms instead of structurally tackling the deepening recession.

After its visit to Harare last month to assess the state of the economy and the current reform programme, the IMF, while acknowledging government is battling to fix the situation, said things are getting worse.

Growth has slowed down, it said, because of inadequate financial in flows, despite a favourable agricultural season. This and the appreciation of the South African rand, the currency of Zimbabwe’s major trading partner, have caused a liquidity crunch that has further weakened economic activity. The external position remains precarious with low levels of international reserves, a large current account deficit, and external arrears.

It advised government to balance its primary fiscal budget, restore confidence and stability in the financial sector, tackle the debt crisis and clarify the damaging indigenisation policy which has led to capital flight and kept investors at bay.

The CZI report released on Wednesday was even more damning. It said: “Industries in Zimbabwe are under serious threat. De-industrialisation has reached catastrophic levels, with dire consequences to the state of the economy. Arresting de-industrialisation will not be an easy task. Both private and public sectors must take action to address the spectre of economic stagnation or decline.”

The results of the survey show a decline in the sector compared to last year. The collapse in the economy at large has not spared the manufacturing sector.

In 2014, average capacity utilisation continued to drop, shedding 3,3% points to 36,3%. Quite telling is the prolonged effects of power cuts and costs, liquidity challenges, low domestic demand and many other factors.

Now this is the reality. Mugabe and his government must deal with it. They can’t continue kicking dust and ducking responsibility. Of course, everybody knows they have no clue at all, but then it’s their job. They must do something about it urgently.