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Oliver Kazunga Business Reporter
ECONOMIC commentators have expressed concern over the country’s continued downward trend in year-on-year inflation levels amid fears that if this continues Zimbabwe will experience deflation. The low inflation figures Zimbabwe is experiencing are largely because of the tight liquidity situation in the economy.
In light of this, economic commentators have called on the Government in the 2014 national budget set for presentation by Finance Minister Patrick Chinamasa tomorrow to harness the persistent liquidity crisis in the economy.
According to the Zimbabwe National Statistics Agency, the annual rate of inflation for November shed 0.05 percent, meaning that prices went down by an average 0.54 percent in the 2012 months to November 2013.
Economic commentators said if the present liquidity crisis was not addressed in light of the continued downward trend in inflation figures, the country would end up with deflation, a phenomenon that impacts badly on the economy.
Deflation refers to a decrease in the general price level of goods and services and it occurs when the inflation rate falls below 0 percent.
“The downward trend in inflation levels is a result of economic stagnation due to lack of demand for goods because there is no cash flow in the market. If inflation continues to decline, we end up with deflation which is not good because that means the economy will not be moving forward.
“We hope that the Finance Minister in the 2014 national budget will be able to address the liquidity crisis in the economy so that economic activity is stimulated in the economy and avoid deflation,” said an economic commentator, Trust Chikohora.
He said the country once experienced deflation when the country adopted a multi-currency system in February 2009.
However, he said that was expected and good for the economy because the development sought to correct the hyperinflation trend that existed before the economy was liberalised.
Chikohora said due to the Euro zone crisis the world experienced few years ago, some countries across the globe were also worried about the “very” low levels of inflation they were presently experiencing.
“They are worried about very low inflation figures they are experiencing because they don’t want to have deflation in their economies. Deflation doesn’t encourage economic growth,” he said.
In the 2014 national budget, he said Minister Chinamasa needs to highlight measures that are aimed at improving Foreign Direct Investment (FDI) and lines of credit to increase liquidity in the economy.
“He (Minister Chinamasa) needs also to ensure that issues to do with infrastructure rehabilitation and development are prioritised to stimulate economic growth.
“Significant amount of funding has to be allocated on Government expenditure on infrastructure development projects. He also needs to talk about the tax-free threshold as well as increasing civil servants’ salaries in line with the Poverty Datum Line,” he said.
An economist with a leading financial institution, Innocent Masauti concurred with Chikohora adding that Zimbabwe’s inflation figures were not driven by economic principles.
“Generally, you would find that there is not much liquidity in our economy and normally when we talk of inflation it is usually measured by consumer goods. Because the economy is illiquid, consumers tend to be choosy when buying and when this happens, retailers will ultimately lower prices of goods resulting in inflation to continuously go down,” he said.
He said if the liquidity situation does not improve, going into next year, Zimbabwe would experience deflation.
“Simply put, deflation means inflation has gone down to levels below zero. When this happens it results in business cycle contraction where the economy goes into recession with companies holding back onto production because there is no demand for goods.
“Some industries because of deflation may be forced to scale-down operations or even close,” said Masauti.
The 2014 national budget, he said, should lay the foundation for redirecting the country’s economy.
“The budget needs to tackle liquidity crisis, which at the moment is the major constraint facing the economy. Focus should be on funding key productive sectors of the economy; if companies are not funded that means more companies are likely to close down next year.”
He urged Minister Chinamasa to implement measures that attract FDI saying to lure investment into the country there was a need to restore business confidence in the economy.
“We need external budgetary support from FDI so that the economy moves forward. With policies such as the Indigenisation and Economic Empowerment, we need to ensure that it is properly implemented so that countries especially from the East invest in the country or provide us with budgetary support. Countries from the West that are against the policy may also come on board if they realise that our economy is performing well,” said Masauti, adding that the gains that come as a result of the Indigenisation and Economic Empowerment programme should not be reversed.
An economic commentator, Peter Mhaka echoed similar sentiments saying at the moment economic rescue was centred on measures Minister Chinamasa would announce in the 2014 national budget.
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