HARARE (Reuters) – Zimbabwe’s economy will shrink this year due to a drought and severe power cuts, its finance minister said, as he announced a threefold hike in electricity tariffs that will fuel already crippling inflation.
Prices of basic goods and services have more than doubled since June, amid widespread shortages that have stirred memories among an increasingly impoverished population of economic chaos a decade ago, when rampant money-printing fueled hyperinflation and forced the country to abandon its currency.
Without providing a figure, minister Mthuli Ncube told parliament in his mid-year budget review that the economy would contract this year. In November he had forecast growth of 3.1% growth.
He also said average domestic electricity tariffs would rise to 3 U.S. cents per kilowatt/hour from 1 cent with immediate effect as the government seeks to raise more funds for power generation. The businesses tariff would average 5 cents.
Zimbabwe has been suffering acute power shortages since May, as a result of a prolonged drought that has reduced output at its largest hydro plant and ageing coal-fired generators that keep breaking down.
Ncube also said Zimbabwe would defer publication of year-on-year inflation until February 2020 following the adoption of a new currency in June.
The hope and euphoria that greeted long-time leader Robert Mugabe’s departure after a coup in 2017 has gradually turned to despair as his successor as president, President Emmerson Mnangagwa, has failed to revive the economy or usher in meaningful political reforms.
Workers’ incomes have been eroded by the resurgent inflation and many now struggle to buy basic goods like sugar, flour and cooking oil.
The economic meltdown is fuelling popular anger, and there are concerns of a resurgence of the violence that spilled onto the streets in January, when a sharp rise in the price of fuel sparked protests and an army clampdown in which more than a dozen people died.
Some of the government’s actions like running a budget surplus for the first time in years, stopping runaway money-printing and ending offshore borrowing and as well as limiting its central bank overdraft under an IMF staff monitoring program are supposed to revive the economy.
But probably the biggest driver of inflation expectations is the lack of confidence many Zimbabweans have in the country’s new currency, the Zimbabwe dollar, which was re-introduced in June. Before then, it was named the RTGS dollar and had been artificially pegged to the U.S. dollar, leading to a huge discrepancy between its official and black market rate.
Many citizens also doubt their leaders can deliver the changes they seek because they are mainly the same people who propped up Mugabe for decades.