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Zimbabwe inflation: The horses have bolted Mr President!

23 Jul 2019 at 08:22hrs | Views
WHEN Zimbabwe gained independence from colonial rule on April 18, 1980 and when the new born country replaced the Rhodesian dollar with the Zimbabwean dollar, that currency was initially more valuable than the United States dollar and inflation at the time was at 7%. In reality, however, the 7% inflation meant the Zimbabwe dollar was less valuable in terms of purchasing power.

From 1980 the inflation rate progressively rose to 55% by 2000. It took the country 20 years to reach that level of inflation and this was mainly driven by an increasing appetite by the Zimbabwe government to print the Zimbabwe dollar to meet recurrent expenditure. And key among the inflation drivers was Zimbabwe's involvement in the 1998-2003 war in the Democratic Republic of Congo and a decision to pay a hefty pay cheque to each of the fighters of the country's liberation war. But former President Robert Mugabe's regime chose to downplay the damaging effects of inflation and set the printing presses at Fidelity Printers into overdrive leading to the inflation rate bolting out of control from 200% in 2002 to 500 billion percent by end of November 2008. The hyperinflation effectively killed the Zimbabwe dollar.

Fast forward to 2019 — 10 years after the country swallowed humble pie and dollarised the economy leading to the southern African country experiencing deflation for the first time in its history — Zimbabwe's inflation, at 175%, is almost equalling the 2002 levels. Effectively, we are back in the hyperinflation zone again and fast sinking into it.

The signs are all there: Weekly price hikes of fuel that are helping drive inflation rapidly higher and with it more commodity price increases which lead to more inflation and driving up the cost of living.

Zimbabwe is clearly now trapped in the inflation cycle of its own making. We have been there before.

While Finance minister Mthuli Ncube, like his previous predecessors during the Mugabe era, keeps telling us that everything is firmly under control, the inflation figure should send alarm bells ringing madly down President Emmerson Mnangagwa's administration corridors. And while the present day monetary authorities tell us that they learnt a lot from history and would not wildly print the reintroduced Zimbabwe dollar, the situation on the ground tell us the horses pulling the inflation rate have bolted.

And spurring forward these horses is the fuel price and the general rising cost of living in the country. A week after government effected a 15% fuel hike, another 23% climb greeted the nation yesterday morning. Cumulatively, fuel prices have gone up by about 456% this year alone.

A 150% hike in January this year triggered violent protests during which the military killed 17 people according to human rights groups in a brutal clampdown.

Rolling power cuts — of up to 18 hours per day — are forcing businesses to use expensive diesel generators to power their operations.

Government has already said it would raise the wages of public workers and the private sector is following suit. Even if Ncube and colleagues want to wear a brave face telling us that everything will be fine, Zimbabweans know a con when they see one. Government must just face the truth and react accordingly to address the mess that it created.

Source - newsday
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