Search

 

Cablegate: Inflation 400 Percent; Zimdollar 5,000:1

This record is a partial extract of the original cable. The full text of the original cable is not available.

210618Z Aug 03

UNCLAS HARARE 001652

SIPDIS

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ECON EINV PGOV ZI
SUBJECT: Inflation 400 Percent; Zimdollar 5,000:1


1. Summary: Year-on-year inflation has reached 400
(actually 399.5) percent while the Zimdollar has fallen
to Z$5,000:US$. The Government still seems unwilling to
let the market (or an independent central bank) determine
interest or exchange rates. As a result of this strained
macroeconomic environment, the business outlook remains
poor. End Summary.

Spiraling Inflation
-------------------
2. Still, Zimbabwe's cash shortage may be subduing
inflation by suppressing consumer demand for certain non-
essentials. Handicraft and apparel manufacturers have
recently told us the cash crisis is slowing domestic
sales.

3. Price controls have failed to contain inflation and
industry now ignores most of them. To some extent, the
GOZ has conceded this by recasting its role to monitor
rather than control prices.

4. We do not believe the Government will be able to rein
in inflation without allowing interest rates (currently
over 300 percent negative) to rise. Since nearly all
personal and business loans carry variable rates, this
will be painful medicine and spark defaults en masse.
Several local banks could go under. Most importantly,
negative real interest rates are failing to spur growth,
their only compelling rationale (other than the GOZ's
desire to borrow cheaply).

Rapidly Devaluing Zimdollar
---------------------------
5. The weakening Zimdollar is the most obvious symptom of
dismal external accounts. In this regard, negative
interest rates are driving capital out of the country,
while the country's shaky politics and judiciary
eliminate any possibility of attracting new foreign
direct investment (FDI). At the same time, the
overvalued official exchange rate enforced by the Reserve
Bank means exporters cannot take advantage of Zimbabwe's
low opportunity costs in many sectors. Furthermore, the
GOZ forces many firms (e.g., cotton, fertilizer, maize,
coal, etc.) to sell part of their production locally
rather than abroad, making them settle for less favorable
cost ratios. Since 2001, imports have exceeded exports.

6. Finally, given its arrears, the GOZ is unable to
reengage multilateral lending organizations like the
International Monetary Fund and World Bank. Other than
shoring up FDI and exports, this would be the easiest
short-term solution to make up the external accounts
shortfall.

Comment
-------
7. Although statistics are unreliable in this area, the
current account deficit alone may now be 8 percent of
GDP. (The IMF estimated it at 6.7 percent in December
2002.) Zimbabwe's position in a world economy is
slipping fast.

Sullivan

© Scoop Media

 
 
 
World Headlines

 

OECD: Final Quarter Of 2020 Shows Continued Recovery In G20 International Merchandise Trade

G20 international merchandise trade continued to rebound in the fourth quarter of 2020 ( exports up 7.2% and imports up 6.8%), following the sharp falls seen in the first half of 2020, as lockdown measures affected trade globally. Although growth ... More>>

UN Report: Civilian Casualties Surged After Peace Talks Began In Afghanistan

Monitoring by the UN Assistance Mission in Afghanistan, UNAMA, and the UN Human Rights Office has revealed that despite a drop in civilians killed and injured overall in 2020 there was a rise in civilian casualties following the start of peace negotiations ... More>>

Climate: UN Chief Lauds ‘day Of Hope’ As US Officially Rejoins Paris Climate Accord

The official return of the United States to the Paris Agreement on Climate Change represents good news for the country and the world, UN Secretary-General António Guterres said on Friday during a virtual event to mark the occasion. The US, under ... More>>

Focus On: UN SDGs


2021: Critical Year To ‘reset Our Relationship With Nature’ – UN Chief

During this time of “crisis and fragility”, the UN chief told the United Nations Environment Assembly on Monday that human well-being and prosperity can be vastly improved by prioritizing nature-based solutions. Painting a picture of the turmoil ... More>>


Paris Agreement: UN Secretary-General António Guterres To Mark U.S. Reentry With Envoy For Climate John Kerry

Watch live at webtv.un.org UN Secretary-General António Guterres will join U.S. Special Presidential Envoy for Climate John F. Kerry at an event marking the United States’ reentry into the Paris Agreement this Friday. The discussion with the Secretary-General ... More>>

WeBeliev: Scoop In Conversation With Abhishek Sinha, Founder Of WeBeliev, An NZ Crowdfunding Platform

WeBeliev supports 17 SDGs, launching sector specific campaigns every month Q. What is WeBeliev and why did you start it? A. WeBeliev is a Singapore-registered crowdfunding platform aimed at fundraising for all the 17 Sustainable Development Goals (SDGs) ... More>>