When the Finance minister announced that government would embark on belt-tightening austerity measures, not many anticipated that the price of bread would quadruple within months. Barely six months after announcing the National Budget which introduced of measures to steer economic not many agree that the proposals are yielding the desired results. In fact, many see the economy on a slippery slope and the million dollar question is now “Whats next?”
This week, confusion reigned supreme in the petroleum industry after the central bank said it would relax its regulations on the interbank market for foreign exchange with effect from Tuesday. Predictably players in the petroleum industry responded by raising fuel prices and government reacted, evoking memories of yesteryear price controls.
The commodity is in short supply and the situation could have worsened following government rejection of an increment in prices.
Government forced the country’s fuel dealers to revert to RTGS$4,97 a litre of petrol and RTGS$4,89 a litre for diesel from as high as RTGS$8 per litre for petrol.
Development in the petroleum industry a tip of the iceberg and government should treat this and other attendant problems as a matter of urgency.
With political temperatures rising this could be a ticking time bomb. While the issue on fuel came to the fore this week, the broader picture has not been shining, with inflation, which continues to rise ravaging the already ailing economy. Annual inflation for the month of April was 75,80%, a nine percentage points increase from 66,80% in March.
The problems facing our country are much larger than we see on the surface, and only when root problems are fixed that the country might find its feet again.
The fact of the matter is that the cancer eating our beloved nation economically has been around for some time now, but some of the problems could have been overcame if we had done the correct thing at the right time.
Of great concern is the way the agricultural and mining sectors – arguably the two back borne sectors of Zimbabwe’s economy – have received little attention they deserve. There is hardly enough activity in farms across the country, while miners are now shunning the local market following sharp differences with the Reserve Bank of Zimbabwe (RBZ), especially the foreign exchange retention thresholds.
Also, this year’s tobacco selling season has not been that satisfactory after the central bank shifted goal posts on the retention threshold they were offering, putting a dark cloud over the prospects of next season. These differences will surely have a bearing on the tobacco industry next season. We believe such developments are not good for the economy in the long term.
The delivery of gold and other minerals in the local market has been minimal over the same retention demands by the gold producers, who are demanding at least 70% retention ratio. Statistics show that gold deliveries to the country’s sole buying entity, Fidelity Printers and Refiners, took a 10 percent drop in the first quarter this year, compared to the same period last year.
Deliveries in the first three months of the year totalled 6,5 tonnes down from 7,3 tonnes from last year. The decline will dent the 2019 target of 40 tonnes, which was set after a sterling 33,2 tonnes last year.
It is against this background that we advise the decision makers not to tamper with economic hubs which directly affect downstream economic activities. The moment large scale businesses’ operations stutter, small businesses cough. No wonder why is has not been easy to arrest inflation because our economy now largely depend on imports.
Some of problems are also historical.
There was a major problem from 1998 to 2008, a period known as the lost decade as Zimbabwe experienced a serious economic meltdown which resulted in the country experiencing an unprecedented 231% hyperinflation. The country ditched its defenceless Zimbabwe dollar due to inflationary pressures as there were genuine fears that the economy would slide further.
Since October last government introduced fiscal and monetary measures, including austerity measures, the introduction of a local currency, the RTGS dollars and the official interbank market to deal with the thriving parallel market.
These measures, however, appear to be failing to deal with black market as the official market is failing to avail adequate foreign currency to companies to import critical raw materials. Companies have no choice but to continue procuring foreign current from the black market, where premiums are punitive. They end up passing on the costs to the already burdened consumers.
This week, the local currency was trading at 1: 5,13 against the United States dollar, while on the parallel market, the RTGS dollar was trading at 1:7,20 against the greenback.