Brace for inflation in 2023
The Famine Early Warning Systems Network (FEWSNET) says the country is likely to continue experiencing price increases, which are being fuelled by rising manufacturing costs and parallel market currency rates.
The country is working tirelessly to ensure economic stability due to internal economic imbalances and price increases emanating from the Russia-Ukraine conflict.
“Following relative macroeconomic stability over the last few months, prices are likely to continue increasing into early 2023, further reducing the market access of poor households to basic food and other commodities,” said FEWSNET that is under USAID in its recent key message update.
The country is currently experiencing power blackouts lasting up to 15 hours a day due to ageing infrastructure and low water levels at hydroelectric plants.
“Additionally, widespread and prolonged national power cuts are negatively impacting most sectors of the economy, increasing the cost of production and reducing engagement in income-generating activities, thereby limiting household purchasing power and income,” stated FEWSNET.
Economist Dr Prosper Chitambara commenting on the issue said; “Government should expedite addressing the issue of energy because no investor wants to plough their funds in a destination that is infested with severe power blackouts like we are experiencing right now because setting up a new solar plant or a new generator means an additional cost to the investor and no one likes that.
“This means if these issues are not dealt with we will certainly see prices of goods adjusting upwards because the issue of power plus delays in China due to the lockdowns they were experiencing will mean delays in shipments of raw materials.”
Accordingly, the central bank has issued a stern warning to contractors who were recently remunerated by the Government and must desist from trading on the black market amid the continued devaluation of the local currency against the greenback.
This comes as the gap between the official and black-market exchange rates continues to widen.
Once that starts happening the authorities know that some contractors will be sinking some of the proceeds of their payments to the parallel market to attack the local currency.
“Parallel market exchange rates increased by nearly 15 percent in December from November, trading between 850-950 local currency per USD, likely due to increasing demand for the ZWL and increased foreign currency inflows as the festive season begins,” the report reads in part.
“A high-cost environment feeds chronic inflation and scares away private sector investment, which is generally viewed by economists as the powerhouse for robust national output (GDP), income, and employment growth,” said Zvikomborero Sibanda while appraising Zimbabwe’s economic performance for 2022 and the outlook.
Economist Gladys Shumbambiri said; “The 200 percent interest rate is just too outrageous that companies are afraid to borrow in order to improve their capacities, apparently this is a direct attack to the industry, albeit having been helpful in addressing the issue of inflation.
“As a result companies are looking to fund operations solely from cashflows hence adjusting prices at the first opportunity they have. This will be the case in the first half of the year if the Reserve Bank of Zimbabwe does not change its benchmark interest rates.”
The Treasury has maintained its economic growth projections of 4 percent in 2022 and 3,8 percent in 2023, despite the increased power outages that have hit the productive sectors of the economy.
The RBZ has maintained that the hawkish monetary policy shall remain in place until the country reached what the central bank governor Dr Mangudya referred to durable stability.
He argues it’s too risk for the country to relax the policies after all along the country had been enjoying some relative stability.-ebusinessweekly
