Heralding new economic dawn premature, say analysts

Zimbabwe's economy is unlikely to recover in 2006, despite reports of a new deal between government, business and labour aimed at improving prospects for stability. While the official Herald newspaper reported that the Tripartite Negotiating Forum (TNF) - comprising representatives of government, business and labour - had reached an agreement on a Price and Incomes Stabilisation Protocol, both labour and business officials denied an accord. Among the targets the TNF reportedly agreed to was a commitment by the government to reduce inflation, currently running at 585 percent, to 80 percent by the end of the year. Another was that the budget deficit be cut to less than five percent of GDP. Economist Dennis Nikisi told IRIN these targets would be unattainable. Reducing the deficit and reining in inflation was not possible "when the government's domestic borrowing is at $14 trillion [US $15 billion). How are they going to redeem that as soon as those [treasury] bills mature? It's going to push a lot of money into the economy, resulting in additional monetary growth and inflation that is not going to go down", Nikisi said. He added that government entered into its deregulation strategy with the hope that "prices will find a disciplined level and bottom out". "They [government] felt that if we let go of the reins [in terms of price controls on goods and fuel imports] ... there will come a time when resistance creeps in and demand will lessen and things will stabilise. But because of the endemic shortages [of fuel, basic commodities etc] inflation is not bottoming out, it's only getting worse," Nikisi explained. Inflation could peak at 1,000 percent in 2006, he warned. Zimbabwe needed sustainable sources of foreign currency, and the support of the International Monetary Fund and the World Bank. "I don't see Zimbabwe managing to have sustainable supplies of fuel and many other raw materials [in short supply] without that," Nikisi added. Confederation of Zimbabwe Industries (CZI) chief executive Farai Zizhou also told IRIN the deficit and inflation targets reported in the Herald were not achievable this year. He added that the TNF would meet again on 19 January to discuss recommendations from its technical committee on the matter, but no agreement had been reached as yet. Zimbabwe Congress of Trade Unions General-Secretary Wellington Chibebe said the Herald article was surprising as labour had understood government to be resistant to many of the recommendations in the proposed Price and Incomes Stabilisation Protocol. Zizhou noted that Reserve Bank governor Gideon Gono is expected to make a policy statement in the next week or so. "This will be instructive as he will outline what weapons he intends to employ to fight inflation. Part of the reason we have high inflation is due to the central bank's effort to raise money for food imports through the release of a mixture of treasury bills on the market," Zizhou noted. "A choice had to be made between high inflation and starvation."