Zimbabwe’s Finance Minister Mthuli Ncube touted the health of his country’s economy even as the southern African nation experiences fuel shortages and the highest inflation rate since 2008.
The government has put in place measures to liberalize the currency, curb spending and improve the management of state-owned companies he said in an interview with Bloomberg TV in Washington. Last month the country scrapped its insistence that local securities known as bond notes and their electronic equivalent trade at par with the dollar and allowed them to be exchanged in an inter-bank market that has seen the rate oscillate at about 2.5 to the dollar.
“Zimbabwe is certainly on its way to a better place on the fiscal front because we are managing to walk the talk,” he said in an upbeat interview. “Zimbabwe is the cheapest buy in Africa and it has just gotten cheaper. I think we are back in the game.”
While Zimbabwe’s finances have improved, with the government recording an average monthly budget surplus of around $100 million for the last four months, according to Ncube, that isn’t evident on the street. In January the government more than doubled fuel prices, sparking the worst urban riots since 1995, and state teachers and doctors went on strike over pay. In addition to fuel, staples like bread are also in short supply.
Inflation, which peaked at an estimated 500 billion percent in 2008, has risen sharply to 56.9 percent in January. In reality the price growth is probably significantly faster, according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University in Baltimore. That’s because most commerce takes place at the black-market exchange rate, which is currently between 3.41 and 3.55 local currency units to the dollar.
Ncube, an academic who has lectured at the University of Oxford, was appointed to the post by President Emmerson Mnangagwa in September as part of a bid to kickstart a moribund economy that stagnated during the rule of former President Robert Mugabe.
The liberalizing of the currency will allow Zimbabwe “to introduce proper monetary policy” and eventually inflation targeting, he said.
“Given what’s going on it’s difficult to see how this is going to happen,” Jee-A van der Linde, an economist at NKC African Economics, said by phone. “They don’t have the legitimacy or the policy tools in place to make this feasible.”
Ncube said the volume of currency traded on the inter-bank market will be publicly disclosed and that $7.5 million traded last week. So far the central bank has not disclosed these volumes.
“We have to disclose that because that’s key to the understanding of the market micro-structure,” Ncube said. “Government will not be a participant. We should stay out, otherwise we will distort the market.” – Bloomberg