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NewsDay

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‘Opening of borders to stabilise prices, but…

Business
GOVERNMENT’s lifting of the import ban on selected goods will stabilise prices and contain the rising inflation in the short term, but keep the economy in inflationary mode due to the high money supply in the market, an expert has said.

GOVERNMENT’s lifting of the import ban on selected goods will stabilise prices and contain the rising inflation in the short term, but keep the economy in inflationary mode due to the high money supply in the market, an expert has said.

BY TATIRA ZWINOIRA

Since Tuesday, when government lifted the import controls found in Statutory Instrument (SI) 122 of 2017, experts seem to have downgraded the country’s annual inflation in the short term but warned the high inflationary mode was still there.

“Will this help the inflationary mode we are in, yes, in terms of making goods available. That is fine, but this has got nothing to do with money supply in the economy because inflation in simple terms means there is too much money chasing too few goods. It will obviously raise supply but will do nothing to the monetary supply because it is a different ball game all together. This is a problem of the fiscal deficit,” Africa roundtable chief executive officer and economist Kipson Gundani, told the NewsDay yesterday.

“So even if you import, no matter how much you import and make goods available as you continue to print money borrowing from the domestic market and printing RTGS (real time gross settlement) money, the prices will still go up.”

According to the Parliament Budget Office (PBO), fiscal budget financing is largely through Treasury Bills (TBs) and the Reserve Bank of Zimbabwe overdraft. TBs have grown to $7,6 billion from $2,1 billion in 2016, while the overdraft stood at $2,3 billion at the end of August 2018.

The PBO has stated that this situation is not only causing mounting interest payment obligations, but also crowding out private sector and contributing to cash shortages due to the mismatch between virtual money and notes and coins in circulation.

Gundani said by outlawing the three-tier pricing system, but maintaining the one to one parity between the local money and the United States dollar, companies would be forced to go to the parallel market to source forex to import.

“But if they (government) were going to say the three-tier pricing is legal, you were going to find a drift from the RTGS and the bond notes towards the dollar. So it was going to be a process of re-dollarisation, which would curb the inflationary environment,” he said.

On Tuesday, renowned American economist Steve Hanke, on the microblogging social media platform Twitter, said the country’s annual inflation was 174%.

On Saturday, Hanke said it was 177%.

On Wednesday, commenting on an article published by this paper on how the fiscal deficit is expected to breach $3 billion by year end, based on computations by the PBO, Hanke tweeted that Finance minister Mthuli Ncube was all talk.

“Ncube is all talk. No action. Enough talk, more action. Zim (Zimbabwe)’s crisis is spiraling out of control,” he said.

Hanke measures annual inflation based on the Purchasing Power Parity methodology to calculate due to what he described as a data void by the national statistics agency, ZimStat.