Unprecedented crisis says think-tank

The UK-based Economist Intelligence Unit (EIU) said on Tuesday that Zimbabwe would continue to suffer its most serious political and economic crisis in its 20-year history, and predicted that President Robert Mugabe would not finish his current term which runs until April 2002.

The EIU said the economy would remain in a steep downward spiral, with negative real GDP growth, a huge fiscal deficit, rapidly rising inflation and a falling exchange rate. According to the unit, the economy could be damaged in the long term as a result of the current “fast-track” land resettlement policy. The downward spiral is only likely to be broken after Mugabe has left office, real reforms are introduced and external assistance is resumed. The EIU put real GDP growth in 2001 at just 1.8 percent.

The current slow down was initially caused by foreign-currency shortages, which made many key imports unobtainable and prevented producers from recouping their production costs in domestic-currency terms. However, the EIU pointed out that this problem is now being compounded by the political crisis, fuel shortages and electricity cuts, accelerating inflation, the land reform programme and worse than expected tobacco sales. Essentially, this means that most businesses and factories are only working 2-3 days a week at most, while the agricultural sector is in a deep crisis of confidence.

The year-on-year inflation rate was 62 percent in September. It is unlikely to fall for a considerable time as the government continues to print money to finance its budget deficit, the EIU said. However, with the introduction of more structured reforms in late 2001, inflation should start to subside and hyperinflation would be avoided. Assuming the reform programme is maintained, this downward trend should continue in 2002.

Following a 24.2 percent devaluation of the Zimbabwe dollar in August 2000, the government has bowed to the inevitable and carried out a series of mini devaluations leaving the Zimbabwe dollar at 55 to US $1 at the end of November. But the new rate is still out of line with the black-market rate and will remain so as foreign exchange remains extremely scarce and inflation continues to erode its value. The EIU said that if there is no significant improvement in the economy, the currency would fall substantially in 2001-02, with a forecast average value of 64.8 to US $1 in 2001 and 87.5 to US $1 in 2002.