Inflation expected to increase as govt prints more money

According to the analysts, Zimbabwe would continue to be a victim of Mugabe’s political policies, especially as the country limps towards combined presidential, parliamentary, senatorial and council elections that the beleaguered Zimbabwean leader has to win at any cost.

Shortages of goods and services are expected to wreak havoc on the tottering economy, described by the World Bank as the worst performing country outside a war zone.

A four-month shortage of banknotes has continued to hog the limelight despite desperate attempts by the central Reserve Bank of Zimbabwe (RBZ) to rid the country of so-called cash barons.

The shortages are seen continuing for the foreseeable future as long as inflation remains the country’s number one scourge.

Consultant economist John Robertson said one of the main drivers of the economic meltdown would continue to be money printing during the next three months as the government desperately tries to win votes.

“We expect much more inflation during the coming months because government needs to continue printing money to finance its expenditure in the face of its poor credit rating,” Robertson said.

The government would need to print more money to finance salary increases for civil servants, political campaigning for the ruling Zanu (PF) party ahead of the elections and to finance regular needs such as fuel and power imports.

The RBZ is expected to continue scrounging the illegal foreign currency market for hard cash to finance energy imports, helping to further weaken the Zimbabwe dollar exchange rate and worsening the inflation outlook.

Zimbabwe’s headline inflation, estimated at nearly 15 000 percent last October and considered the highest in the world, is seen climbing drastically until March.

Bulawayo-based economic commentator Eric Bloch said month-on-month inflation, which reflects movements in prices of goods and services, was expected to rise between January and March driven by populist policies meant to win the elections for Zanu (PF).

I see inflation averaging 120 percent for the first three months of the year,” Bloch said.

He added that inflation could ease to around 12 000 percent by year-end on the back of a progressive easing of pressure on prices from May, assuming there was a change in the economic direction of the country.

The analysts said a change in the country’s economic fortunes would require some painful policy decisions by whoever comes into power in March.

“I am expecting nothing to come from the elections unless there is a change in political policies,” said Robertson.

These would include improving the productivity of the business sector and viability of Zimbabwe’s export sector as well as a drastic cut in government spending and returning agriculture to its former glory.

Zimbabwe’s industrial sector was last year estimated to be operating at below 30 percent of its capacity, largely due to the government’s incoherent economic policies such as price and exchange controls.

“Another price blitz, which we suspect the government could come up with before the March elections, will effectively drive the industry into the ground and cause more hardships for the whole spectrum of society,” said an investment analyst who could not be named for professional reasons. – ZimOnline