Economy to shrink 8 percent - RBZ

The Reserve Bank of Zimbabwe (RBZ) warned this week that the country’s economy was in a “downward spiral” and was likely to shrink by around eight percent this year, a Reuters report said on Thursday. Sydney Mabika, an economist and assistant director at the RBZ, said initial forecasts of a 2.8 percent contraction for the year had been revised downward because of the knock taken by the country’s agricultural sector.

“We are forecasting an eight percent decline (in the economy) in 2001,” Mabika was quoted as saying at a press conference. Later, he said the decline would be “more than five percent”. “Interest rates are low, inflation is shooting through the roof ... and our economy is in a downward spiral,” he said.

Zimbabwe’s economy was in its third year of recession, the report said. The economy shrank by 4.2 percent last year. Mabika’s forecast was relatively close to the estimates of independent economists, who predicted the economy would contract by 10 percent during 2001, according to the report. Mabika also warned that inflation, which rose to a record 76 percent in the year to August, would end the year “higher than that”. He did not speculate on how much it would grow.

“Our monetary policy has not been very successful in containing inflation,” Mabika was quoted as saying. This was partly due to the fact that the central bank’s hands were tied by the government, which was not pursuing complementary fiscal policies.

Mabika said that despite the government’s efforts to close down a thriving parallel market, the parallel market accounted for an estimated 95 percent of all foreign exchange transactions in the country.