Online Reporter
Sikhulekelani Moyo, [email protected]
ECONOMISTS have applauded the Government’s tight monetary policy stance, stating that it has subdued inflation and anchored exchange rate stability.
Tight monetary policy involves limiting the money supply and credit availability by raising interest rates, while tight fiscal policy entails reducing Government spending, thus limiting the liquidity available to chase goods and services.
Zimbabwe’s economy has previously suffered from excessive money creation through various channels, including the Government’s access to the central bank window to fund key public programmes.
According to the Zimbabwe National Statistics Agency (ZimStat), the March weighted month-on-month inflation rate was zero percent, shedding 0,3 percentage points from the February rate of 0,3.
ZimStat also reported that the US dollar inflation rate for March was 0,1 percent, down from last month’s rate of 0,2, while the ZigG rate stood at -0,1 percent, down from 0,5 percent in March.
Economist Mr George Nhepera said that, while the country may not want to raise expectations too much for now, the reality of the current inflation figures suggests that the country has, at last, managed to subdue and control inflation to lower levels.
“All this has been due to the implementation of a tight monetary policy by the central bank and fiscal prudence and discipline by the Government,” said Mr Nhepera.
“Gone are the days of lack of coordination with respect to the ‘two legs’ of monetary policy and fiscal or national budget management.”
Tight, or contractionary, monetary policy is a course of action undertaken by central banks to slow down overheated economic growth.
As such, the RBZ’s tight monetary policy stance has anchored price and exchange rate stability across the market.
Inflation in Zimbabwe tracks the movement in the exchange rate, meaning that stability in the domestic currency, which is influenced by the level of money supply in the economy, is one of the most critical factors in maintaining stability.
According to the World Bank, there was a significant surge in money supply at the beginning of 2024, but a hawkish monetary policy, following the introduction of ZWG in April last year, has restored price stability.
Zimbabwe experienced high inflation in the first quarter of 2024, amid significant expenditure on key infrastructure, rekindling fears that the country could plunge into hyperinflation, similar to what happened in 2008, which wiped out people’s hard-earned savings and pensions.
The country is charting a completely new course, with low inflation and a stable exchange rate, which businesses say, if sustained, could support long-term growth and allow greater predictability in the economy.
Dr Prosper Chitambara said there was a need for the Government to address the cost of doing business issues to promote competitiveness and improve livelihoods.
This comes at a time when the annual inflation rate on the US dollar continues to be high, with the March rate standing at 15 percent.
“The increase in the US dollar annual inflation is a concern. This year the numbers have been on the high side. In February, it was 15,1 percent, and now it is at 15 percent,” said Dr Chitambara.
“This makes Zimbabwe very uncompetitive, driven by a number of factors, including the issue of taxes.
“I think there is a lot that needs to be done, and I’m happy that the Government is in the process of reviewing taxes, including the high cost of doing business.”
He said taxes contribute to the high cost of doing business, affecting all sectors, with the fuel sector seeing prices higher than in other countries across the region.
“So, there is a need to quickly address the business environment, including reviewing some of our taxes, simplifying the doing business environment, and the tax administration process, making it easier for businesses. This will also have a bearing on inflation and the cost of living for households,” said Dr Chitambara. —@SikhulekelaniM1
