*** 21-Feb-2* ***
Title: ECONOMY-ZIMBABWE: No Light At the End Of The Tunnel
By Lewis Machipisa
HARARE, Feb 21 (IPS) - Zimbabwe's deteriorating economic woes are
to continue well into the second half of the year and economic
growth could well turn negative this year, a leading bank has
said.
According to the Standard Chartered Bank Zimbabwe in its latest
economic review, the first six months of the year could be very
tight, with a slowdown across the board, a revival of inflationary
pressures in the second quarter, cutbacks in industrial and retail
activity and some retrenchment of staff.
The bank's economists said that the burgeoning public sector
deficit and the government's reliance on domestic borrowing will
maintain upward pressure on interest rates.
''We now see little chance of any material decline in interest
rates during the first three-quarters of 2000, though - depending
on the economic policies adopted after the polls - there remains
an outside chance of some reduction in rates towards the end of
the year,'' they wrote.
''Against this background, we have reduced our 2000 Growth
Domestic Product, GDP, growth forecast from 2,5 percent to 1,5
percent. Should the fuel shortage continue much into the second
quarter, growth could well turn negative this year, though it is
still too early to reach so dismal a conclusion,'' says the bank.
''Anecdotal reports point to a marked slowdown in tourism -
also adversely affected by the fuel situation - so that hopes of
improved foreign currency availability depend on firmer commodity
prices, higher tobacco earnings - though not before May - or the
resumption of aid disbursement by the donor community,'' the bank
commented.
''This latter development seems unlikely at least until after
the elections,'' the bank noted.
International donors have put a freeze on Zimbabwe demanding
that the government put in place prudent measures to curb its
uncontrolled spending.
In August last year, the International Monetary Fund (IMF) had
agreed to lend Zimbabwe 193 US Dollars over 14 months, provided
the government met agreed benchmarks -- it did not. Some of these
benchmarks included a reduction of the budget deficit to 5,3
percent of GDP from 6,4 percent in 1998, a significant reduction
in the public service.
The civil service would have been cut from 164,000 people to
149,600 by the end of 1999 and public service wage bill restricted
to less than 12 percent of GDP.
The IMF balance of payments support loan was to have been
supported by a 193 million US Dollar loan from the World Bank and
45 million US Dollars from the African Development Bank, along
with other donors.
But the government failed to meet the economic targets and the
14 month stand-by arrangement will remain inoperative until its
expiry. Other donors have also withheld the release of their
money.
In its economic outlook, the bank said that six weeks into the
year growth forecasts are being downgraded in response to the
worsening fuel supply crisis and the indifferent rainy season in
some parts of the country, especially the north and northeast.
''Over much of the last 18 months, economic performance in
Zimbabwe has been the hostage of political developments,'' the
bank said.
''The future trajectory of the economy depends crucially on
political rather than business and economic decisions. The
scenario is both fragile and very susceptible to downside risk.
Forecasting will remain extremely difficult until the political
environment clears - one way or the other - after the elections.''
Zimbabwe's fifth multi-party elections will be held in the wake
of a plunging currency value, intensifying industrial actions
against hiking prices of goods, a doubtful farming season and an
ever increasing number of unemployed school leavers.
In a recent speech, the President predicted that the Zimbabwe
dollar would strengthen after the elections on the strength of
new, but unspecified, measures that will be taken by the new
administration.
''This suggests that the current informal exchange control
strategy could be formalised and possibly even extended. Such a
policy would, of course, add to the obstacles in the way of a new
agreement with the IMF and World Bank,'' wrote the bank.
After a massive devaluation of the Zimbabwe dollar, the
government has now informally fixed the exchange rate against
major currencies in a bid to stem the free flow of the currency.
But the move has been condemned by markets experts.
One US Dollar currently fetches 38 Zimbabwe dollars. Had the
rate not been pegged it would have by now been fetching between 55
and 60 dollars. Only in 1997, one US dollar was equal to 14
Zimbabwe dollars.
The country has also been gripped by a severe shortage of fuel
over the past three months as a result of foreign currency
scarcity.
''If the economy is to perform better than these projections
suggest, there will have to be a major change in the business
environment which seems unlikely to occur this side of mid-year,''
predicts the bank.
A mixed rainfall pattern has worsened matters.
''Very broadly, the best rains have fallen in the areas of the
south and west rather than the regions where most crops are
produced in the north and northeast. The implication is that
harvests - though not of tobacco - will be lower than previously
forecast, though this could change during February-March should
the rains improve,'' the banks hopes.
On the exports side however, the bank sees some light at the
end of the tunnel
New balance-of-payments data just published by the Reserve Bank
of Zimbabwe, show a marked improvement in the country's external
payments situation during 1998, when the current account deficit
fell from 745 million US dollars to only 270 million dollars last
year.
According to the IMF, Zimbabwe's current account was in the red
to the tune of 350 million US dollars last year, but other
estimates suggest the figure was closer to 500 million
dollars.(END/IPS/lm/sm/00)
Origin: Harare/ECONOMY-ZIMBABWE/
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[c] 2000, InterPress Third World News Agency (IPS)
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