Multi-currency system to be extended beyond 2012

Victoria Mtomba Business reporter at NewsDay reports that the International Monetary Fund (IMF) says the country will miss its inflation target of 4% by year-end as a result of high food and fuel prices and has urged government to extend the multi-currency system beyond 2012.

According to an IMF Article IV for 2011 Report published this week, year-on-year inflation is forecast to increase to about 7% by December also driven by wage increases and the upward trend in prices for non-tradeables such as rentals and services.

Article IV is a report on the state of the economy published by the IMF for member states compiled in collaboration with the government.

"Twelve-month inflation is forecast to increase to about 7% by December 2011 on account of higher food and fuel prices as well as wage-driven increases in prices for non-tradeables for example rents and services," reads part of the report.

The IMF said the government had agreed conditions for the reintroduction of the Zimbabwean dollar were not yet ripe and hence would announce an extension of the multi-currency system by end of 2011.

Last month Reserve of Bank of Zimbabwe governor Gideon Gono proposed the adoption of the introduction of a gold-backed Zimbabwe dollar to resolve the liquidity crisis currently ravaging the economy.

"The government has stated that the Zimbabwe dollar would not be reintroduced until there is clear evidence of a strong economic recovery, characterised by a sound track record of policy consistency and implementation," reads part of the report.

The Bretton Woods institute said Zimbabwe government authorities continue to attach the highest importance to building internal consensus on a speedy resolution of financial distress at the central bank.

IMF said the central bank should be given priority in the interest of financial stability.

In terms of the outlook, IMF said political tensions surrounding pre-election debate were complicating economic policy-making.

IMF said the adoption of the multi-currency regime had assisted in price and exchange liberalisation, increased efficiency and boosted output, but the recent announcement of the fasttrack indigenisation of the mining sector would be a drag on recovery and cause growth to decelerate to 5,5% in 2011.

"The medium-term outlook is highly uncertain owing to the lack of a roadmap for elections and ensuing political uncertainty," IMF said.