Business / Economy
Zimbabwe import duty review a risk to inflation: Expert
01 Aug 2011 at 06:20hrs | Views
An economist with a leading bank in Zimbabwe says the Government's decision for a review of import duties on some products could have a negative impact on the country's inflation rate in the long run.
ZB Financial Holdings group economist Mr Joseph Mverecha contends that although the government's decision for a review of import duties on some products should be applauded in respect of the manufacturing sector, there could be broader implications.
He said the measure has downside risks to inflation and may cause further upward price pressures in the economy.
"By how much prices will eventually rise may be partly mitigated by envisaged capacity recovery in the economy and broader issues of productivity gains" said Mverecha.
He further alluded to the fact that the Government has to be concerned about possible inflation spikes that may generate adverse expectations, at a time when the economy has no monetary policy.
Mr Mverecha conjectured that industrial capacity recovery was also a function of other critical factors, including availability of power and affordable credit.
Zimbabwe is targeting an inflation rate of around less than 5 percent by year end, anchored on continued use of multiple currencies and increasing production capacities of the industries.
However, the latest decision on import duties has the potential to further impel the country's inflation rate, which already faces inflationary pressures from movement in the value of the South African rand.
This is largely because that market is the largest supplier of raw materials and commodities to this country, in addition to the fact that Zimbabwe's multi-currency system is essentially pinned on use of the United States dollar.
Excluding the possible effects of the latest review on import duty, economists have generally projected that inflation will remain below 5 percent, assuming limited impact from exogenous shocks such as fuel prices, rand appreciation and containment of domestic costs.
ZB Financial Holdings group economist Mr Joseph Mverecha contends that although the government's decision for a review of import duties on some products should be applauded in respect of the manufacturing sector, there could be broader implications.
He said the measure has downside risks to inflation and may cause further upward price pressures in the economy.
"By how much prices will eventually rise may be partly mitigated by envisaged capacity recovery in the economy and broader issues of productivity gains" said Mverecha.
He further alluded to the fact that the Government has to be concerned about possible inflation spikes that may generate adverse expectations, at a time when the economy has no monetary policy.
Zimbabwe is targeting an inflation rate of around less than 5 percent by year end, anchored on continued use of multiple currencies and increasing production capacities of the industries.
However, the latest decision on import duties has the potential to further impel the country's inflation rate, which already faces inflationary pressures from movement in the value of the South African rand.
This is largely because that market is the largest supplier of raw materials and commodities to this country, in addition to the fact that Zimbabwe's multi-currency system is essentially pinned on use of the United States dollar.
Excluding the possible effects of the latest review on import duty, economists have generally projected that inflation will remain below 5 percent, assuming limited impact from exogenous shocks such as fuel prices, rand appreciation and containment of domestic costs.
Source - TH
