Online Reporter
THE major milestone of single digit annual inflation in our local currency, at 4,1 percent, was passed as expected this month after 12 months of sustained stability last year and several years of getting our economy properly built.
For the first time in the 30 years since the start of hyperinflation in the late 1990s, Zimbabweans can live in a normal country with a normal currency and this will require a whole lot of attitudes to change as we grow to expect prices to remain roughly the same rather than continuously fluctuating and rising.
The 4,1 percent annual inflation rate was calculated by taking the cost of living fairly early this month and comparing it to the cost of living a year ago in early January 2024.
Most importantly, it cannot just be some sort of fluke or one-off or what golfers would call a hole-in-one: It is the direct result of sustained monetary and fiscal discipline for month after month with zero exceptions.
The annual rate has been falling for a year, as the months in the previous year that saw higher price rises fall out of the calculations to be replaced by the months last year where there were only very small jumps. An annual inflation rate of 4,1 percent is far too low for any sudden monthly jumps to be hidden or be clawed back.
Because the new low annual rate is the result of sustained effort and progress in getting the fundamentals right, it can be sustained. We now know what we have to do, and we have three decades of memories of what happens when we do not get it right. So basically what worked needs to be kept up and that is perhaps easier than getting the system right in the first place.
It took a bit longer than expected to get to this point, largely because although the Government and the Reserve Bank of Zimbabwe knew what caused the original hyperinflation, there were a lot more hidden taps increasing money supply than anyone had thought possible, and foreign exchange shortages and pressures were still intense. The reforms needed to encompass a wider range of economic activity. But eventually everything came together in a proper way.
The start was the election of President Mnangagwa and his Second Republic team. Solidly backed by the President for year after year, the economic technocrats got down to basics, starting with a balanced budget, where the Government spent only what it raised in taxes, although making sure that it did collect those taxes so it had the cash.
Without fancy deficit financing and money creation to keep the wheels turning, the Government could move towards boosting efficiencies, making sure it got value for money and making sure that what it was spending was for the social and economic benefit of Zimbabweans, which is why it was elected in the first place and which had to remain number one priority.
Meanwhile, inroads were made into some somewhat peculiar inherited debt that had to be brought to account, and a private sector that had allowed its own cowboys to speculate and create money, rather than earn real wealth by producing goods and services with some real value. High inflation is noted as a way of moving money from the poor to the rich, and certainly some of the rich rather liked being a sort of reverse Robin Hood.
So it was quickly seen that the battle had to be a lot more encompassing, and had to be built around increasing production and increasing exports and generally earning a proper living as individuals and a country. Encouraging investment was a good start, but it takes time to build up production levels; getting farmers to grow more of desired crops had the double advantage of increasing the wealth of the largest group of Zimbabweans, even if they were no longer a majority, as well as national wealth and getting exports to exceed imports. Other programmes also stressed this need to produce, rather than play with bits of paper.
Some imaginative decisions, including the one to back the new ZiG currency with gold reserves, half the mineral royalties being assigned to that, and create a proper interbank exchange rate, were critical. All these policies of an expanding economy, vast increases in production, market forces and the like backed the strong Government discipline.
And last year the bits came together. For the first time in decades we saw exports exceeding imports as the year progressed, allowing the banking system to work properly; we saw the resilience in the economy as it still grew through the most severe drought in decades; we saw the new reserves held by the Reserve Bank start to grow to levels where at least they mattered; and we saw a stable exchange rate, with the regulations setting the rate for businesses dropped, and because the fundamentals were right it hardly changed.
And it was all of this that worked to produce our 4,1 percent with a lack of controls not seen since the early 1960s.
This whole new world will require many to think carefully.
Pay claims need to be around the inflation rate, and so low, although some productivity increases should be possible as standards of living inch up with economic growth. But people need to start getting used to things costing roughly the same over long periods.
Savings become possible, and sensible, again allowing us to build up our own capital as a country. We no longer have to live hand-to-mouth as individuals or a nation.
The present high gold price is just some very nice and useful icing on the cake, but that cake we have baked using the proper ingredients, and our prosperity does not depend on anything else, but our own efforts.
We must now keep pushing ahead, maintaining our discipline and remembering that the way to increase wealth is to produce and sell real things that real people need.
