eBusiness Weekly
Business Writers
The country is not going back to the 2008 era as the fundamentals then and now are different. About a decade ago Zimbabwe suffered record breaking hyperinflation, which resulted in the total collapse of the Zimbabwean dollar.
Many would like to compare that period with what is happening now but economists have said that the two periods are totally different.
Senior Advisor of the Strategic Economic Research Program on the state of the Zimbabwean Economy, Professor Ashok Chakravarti said there is a fundamental difference between what is happening today and what happened in 2008.
“The situation in 2008 was that the RBZ was indisciplined and printing money indiscriminately. And this resulted in hyperinflation.
“When you have a situation of unrestrained printing of money you then get hyperinflation… this is a very common economic phenomenon,” said Prof Chakravarti.
Reserve Bank of Zimbabwe governor Dr John Mangudya said that there were three major differences between what is currently obtaining and what happened then.
“The first one is that the country is using a multi-currency system as opposed to the Zim dollar back then. Second is that the quantity of money in circulation is different. In 2008, they were quintillions of dollars in circulation and we have never had that in the post dollarization vocabulary.
“Third is the differences in problems. The major challenge we are currently facing is about foreign currency shortages and once resolved the economy is poised for a huge take off.”
University of Zimbabwe lecturer Dr Pheneas Kadenge said that the current situation could just be a telling sign.
“What is happening are just telling signs but we cannot necessary compare this situation with 2008. This is how things started in 2008 until issues got worse. The situation is still under control at the moment because there are still goods in shops but there is need for action.”
Prof Chakravarti said: “Prices of imported products are likely to go up, but most of the basic commodities are now manufactured locally so the impact will be limited.
He however highlighted that there is scope to increase exports earnings in the mineral sector such as gold. “The RBZ must have judicious management of foreign exchange and if they do we should not see any serious market prices developing.”
“There is a crisis of confidence because of what happened in 2008 so there is always some nervousness in the market making it very easy for a small event to spark some kind of panic.
Prof Chakravarti also said the bond note is not the fundamental problem.
“It’s just a side issue and the RBZ has been prudent in terms of managing the bond note. The current economic crisis is not a monetary crisis it is something different.
“Dollarisation is not a long term strategy as we have no source of supply of dollars besides exports which are inadequate to meet imports.
“Dollarisation is therefore a dead end and the second best option with possibility of adequate supply is the rand,” said Prof Chakravarti
He said as much as there is need for structural changes in the economy, these take time adding that the fundamental problem being faced today is not a monetary crisis, it’s actually a fiscal crisis.
“The size of our government expenditure is too high. Finance Minister Patrick Chinamasa has pointed that out, the World Bank and the IMF have also said the same and others.
“We currently have a deficit of almost 10 percent of GDP and this is almost about $1,4 billion. This is money that has been created and this is against import pressures which we cannot sustain.
