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The reality of stagflation in Zimbabwe


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Stagflyatsyynaya dilemma Zimbabwe in 2019

The current fiscal year & # 39 is a challenging year for the economy of Zimbabwe. The country is experiencing all the features of the economic downturn on the recession, high unemployment, reduced corporate profits and inflation. Various market participants is very difficult to understand that the country has moved from deflation to hyperinflation stable inflation to less than 3 years. Zimbabwe has experienced a decrease in prices until January 2017, when the inflation rate was 0.65%, and the year amounted to 3.46% (average 0.91% in 2017). Recent inflation ZimStats show that inflation in June 2019 has increased to 175.66% (the second largest in the world after Venezuela, which recently recorded inflation at 282.973% in April 2019). Prices continue to rise with the expected growth of the money supply and the increase in fuel prices, data and electricity, which continue to increase inflationary pressures.

Stagflyatsyya – is an economic situation in which inflation is very high, the rate of economic growth declines, and unemployment remains high. The name comes from its two characteristics that a & # 39 are simultaneous; inflation and economic stagnation. Taken together, these two conditions can be devastating for any market. Such unfavorable combination with the & # 39 is a dilemma for the government, since the majority of politicians, aimed at reducing inflation, such as strict control over the money supply, higher interest rates and austerity measures increase the level of unemployment; and policies aimed at reducing the unemployment rate, for example, subsidies, monitoring and increased public spending, inflation worsens.

Stagflyatsyya in Zimbabwe is mainly due to the rapid growth of the money supply with a little less than $ 3.2 billion in January 2015 to $ 10.5 billion in January 2019, a high tax burden and production shocks caused by fuel shortages and lack of electricity collection foreign currency to import raw materials. materials. As a result, prices rose sharply, which makes production more expensive and less profitable, leading to slower economic growth. Money supply growth means that the aggregate demand for goods and services remains high, thereby maintaining hyperinflation.

Stagflyatsyya very expensive and difficult to eliminate, both socially and in terms of the budget. In history there are only a few examples, and the most typical – in the 1970s in the United States. Start of stagflation in the 70s has been accused in an unstable economic policies of the Federal Reserve System during the boom of the late 1950s and 1960s. Fed moved to reduce unemployment and increase the overall demand for goods and services in 1960 due to the increase in money supply. However, abnormally low levels of unemployment in a decade has caused an increase in both wages and price increases (inflation). The Organization of Petroleum Exporting Countries (OPEC) oil embargo in 1973, also contributed to this undesirable economic developments in the United States. Industry across the country have suffered from excessive increase in fuel prices and shortages. Consumer demand has fallen to a new low, while industrial production has suffered.

In order to ensure economic stability by limiting uncontrolled money supply and public expenditure the Government of Zimbabwe started in October 2018 stabilization program transition (TSP). Policy was aimed at carrying out austerity reforms in the public service. It is aimed at unacceptable by public sector wage bill, which currently consumes 90% of the budget. In addition, the policy is aimed at increasing tax revenues due to the introduction of a 2% tax on the transfer of monitoring (IMT), reduce the budget deficit due to the maintenance costs in public spending and privatization of state enterprises and parastatav (SEP). The privatization program is still the key to the abolition of para-statal losses that continue to make it difficult to make up more debt on the tax payer.

Proposals to reduce or alter state subsidies in agriculture through a command program was quite a strong resistance of the army and some of the interested parties in the government. To date, the government managed to score positive on the increase in tax revenues, which led to the declaration of the following budget surplus in excess of 443 million. Dollars to April 2019. It's pretty much an easy task, given that prices have risen sharply, thereby increasing the value added tax (VAT) and tax revenues IMT; whereas the budget figures were recorded from November 2018. Tax on IMT with & # 39 is a key channel of revenue for the treasury, since 93% of the transactions processed in Zimbabwe, with the & # 39 are electronic. Actual results deterrence still need to tell the government expenditure to assess the difference between the target budget.
Since monitoring government introduced auction system when issuing new treasury bills and increased the interest rate to 50% per annum in the night box with 15% in an attempt to alleviate inflationary pressures, along with other measures to maintain the value of the national currency. Typically, measures taken so far, should lead to a decrease in the inflation rate, but, unfortunately, the prices continue to rise, even though after the intervention of the central bank on June 24 held a temporary salvation.

Part due to the fact that the government does not provide economic stability – is that production has fallen sharply due to the relentless fuel shortages, power outages and daily foreign currency deficit on imports of critical raw materials. Revenues from corporate services in the first half of 2019 fell in real terms on the dollar compared to the same period of 2017 and 2018, after adjusting for currency losses. market confidence remains low and the business prospects cover economic risks. business sector is largely adopted the approach "expectations", by converting the excess liquidity in foreign currency. Manufacturers also need to take on additional costs for the purchase of diesel fuel for generators to maintain production and to stay afloat. As a result of the loss of jobs in the insurance industry, manufacturing and mining increased. March 29, 2019 Old Mutual Zimbabwe, which is a & # 39; is the largest integrated financial corporation in Zimbabwe on the & # 39 volumes of assets and sales, it announced that it plans to cut more than 10% of its workforce in the process of downsizing. This follows from the suspension of operation and the reduction of such industry giants as Metallon Gold, RioZim, Olivine, Surface Wilmar, Lobels and Delta Beverages. Standard Chartered Bank (the oldest bank in Zimbabwe) has made more than 100 employees, more layoffs are planned, since the bank began to implement outsourcing some of their operations in Zimbabwe in countries such as Kenya, Malaysia, China and India.

After the start stagflyatsyya, it is very difficult to stop, because the majority of interventions in politics have adverse consequences for the economy. Economic conditions in Zimbabwe make it difficult to control and tax authorities. In March, the government announced that its savings program will be limited to 2019, because it is not sustainable for a developing country. The central bank sees inflation as the elephant in the room, although the management of inflation may lead to higher unemployment and declining growth in the short term. In order to ensure the stability necessary to direct great efforts to privatize government agencies, policy interventions towards supply in order to increase the level of production and market liberalization to improve economic efficiency. Ultimately, stagflyatsyya requires a much more visionary approach to reform tax policy, such as taxation, in order to stimulate the production and ongoing efforts to enhance market confidence.

Victor Boroma – economic analyst. He & # 39 is a marketer by profession and holds a master's degree in the University of Zimbabwe (UZ). To get feedback, write to him at any or follow him on Twitter @ VictorBhoroma1.

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