FORMER Finance minister Tendai Biti (pictured) says Zimbabwean workers and ordinary people are sinking deeper into poverty as their incomes get wiped out by resurgent inflation due to endogenous and exogenous factors, especially broad money supply growth and Russia’s invasion of Ukraine respectively.
In an interview with The NewsHawks yesterday, Biti — who recently won the Harare East by-election on the main opposition Citizens’ Coalition for Change (CCC) ticket — says salaries, incomes and savings are being wiped out by rising inflation at a scary pace.
“Inflation is running riot due to many factors,” Biti told The NewsHawks.
“Broad money supply growth is intensifying, the currency and exchange differentials, premium and arbitrage are worsening. There is a problem of quasi-fiscal activities through which government is creating money, which is not backed by production, to fund infrastructure projects, especially road construction, and command agriculture. The foreign currency auction system is making a bad situation worse because of how it is funded, manipulated and abused by both the Reserve Bank of Zimbabwe (RBZ) and companies or bidders. The auction system is now like a pyramid scheme; a cesspool of manipulation, corruption and theft ultimately costing the public. All these factors are fueling inflation.
“The price or cost of political and policy decisions and failures by the Mnangagwa regime are also wreaking havoc with the economy and worsening inflation. “There are exogenous factors, like oil prices, which have been affected by the Ukraine war, and associated production and supply chain disruptions. As a result, fuel prices have astronomically gone up and that has a domino effect across the economy.”
Zimbabwe’s annual consumer price inflation climbed to 72.7% in March, from 66.1% in the prior month, reaching its highest point since last June. Main upward pressure came from transportation, at 84.2% versus 66.6% in February, and food (75.1% versus 69.3%), as rising fuel and bread prices triggered a wave of price hikes of basic commodities across the economy.
Inflation has been gradually rising since September last year, with monetary authorities attributing this to the parallel exchange rate’s pass through effect on domestic inflation witnessed toward the end of last year. On a monthly basis, consumer prices advanced 6.6%, following a 7% rise in the previous month.
The Monetary Policy Committee of the RBZ met on 1 April to consider developments on the domestic and international macroeconomic environment fronts as well as the impact of global geopolitical factors on the economy.
“While noting the decline in month-onmonth inflation, from 6.99% in February 2022 to 6.31% in March 2022, the committee was concerned with the escalation in annual inflation, from 66.11% to 72.70%, over the same period,” it said after the meeting.
“The committee particularly noted that global inflation was on the increase as a consequence of the ongoing Russia-Ukraine conflict which had secondary pass-through effects on domestic and international prices.
“Rising prices of oil, gas, fertilisers and other related products had the effect of increasing global inflation and inevitably had a negative impact on domestic costs of production and was destabilising the foreign exchange market.
“In this regard, the committee reiterated the need for the RBZ to remain focused on inflation reduction and putting in place additional policy measures in response to the resurging inflationary pressures and foreign exchange parallel market activities.”
The committee resolved to put in place the following policy measures with immediate effect: l Reviewing upwards the central bank policy rate from 60% to 80% per annum;
- Reviewing upwards the medium-term bank accommodation facility interest rate from 40% to 50% per annum; l Reviewing upwards the minimum deposit rates for Zimdollar savings and time deposits from 10% and 20% per annum to 12.5% and 25%, respectively;
- Further tightening monetary policy by reducing the quarterly reserve money growth target from 7.5% to 5% for the quarter ending June 2022;
- Further liberalising the foreign exchange market by allowing banks to conduct foreign exchange transactions of up US$1 000 under an arrangement agreed upon between banks and the RBZ and in terms of which individuals with free funds and entities/corporates holding foreign exchange in their foreign currency accounts (after meeting the statutory surrender requirements) shall be free to sell foreign currency to banks on a willing-buyer- willing-seller basis; and
- Ensuring that commercial imports are processed through normal banking channels in line with international best practice.
Reacting to the RBZ policy interventions, American economist Steve Hanke, a global inflation expert, said: “Zimbabwe’s central bank has raised benchmark interest rates to 80% in a futile attempt to rein in inflation at 161%/yr. To put real, inflation-adjusted interest rates in positive territory, the benchmark would have to be above 160%. Ouch!”
Biti raised the issue of inflation and the cost of living on Wednesday in Parliament where he returned with a bang after being recalled by his now-defunct MDC-T rivals.
“My question to the honourable minister of Finance and Economic Development, through the leader of the House is that with the cost of living rising exponentially, with the exchange rate depreciating, the parallel market rate is now close to 300, what are you doing to the plight of civil servants, teachers, nurses, doctors, judges, magistrates, bus drivers, Speaker of Parliament, Clerk of Parliament, staff at Parliament, members of Parliament who continue to have their salaries being eroded by the rambunctious inflation and the depreciation of the Zimbabwean dollar?
“Why do you not just dollarise the salary of the Speaker, the Clerk, civil servants, teachers, doctors and nurses?” Biti said.
Speaker of the National Assembly Jacob Mudenda replied: “Order, honourable member, there is no need to mention specific people. Just simply say the public, it is enough.”
However, Biti riposted: “But I was making a case for your salary, too!”
Prices of goods and services have of late been rising at a dramatic pace in a new wave of sweeping escalations due to a combination of factors, largely reflecting the economy’s unstable macro-economic environment — particularly currency and exchange rate volatility and low production — while further pushing Zimbabweans deeper into poverty and suffering, mainly the poor and vulnerable.
The International Monetary Fund recently said Zimbabwe should tighten monetary policy measures to contain resurgent inflationary pressures. — STAFF WRITER.