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Zimbabwe: 'Excessive' Spending By Mugabe Govt Could Fuel Inflation – IMF

Photo: allafrica.com

Anti-govt protesters and President Robert Mugabe.

The International Monetary Fund (IMF)is warning that excessive spending by President Robert Mugabe's government will worsen cash shortages and stoke inflation.

The warning came as latest figures showed inflation rose to 0.48% in April up from 0.21% in March.

"Excessive government spending, if continued, could exacerbate the cash scarcity, further jeopardise the health of the external and financial sectors, and, ultimately, fuel inflation," said Ana Lucia Coronel, who headed an IMF mission to the country this month.

Hyper-inflation peaked in Zimbabwe in 2008. The government was forced to abandon the Zimbabwe dollar in early 2009. But high domestic borrowing and lack of financial inflows has seen foreign currency and the recently-introduced bond notes running short.

In her statement issued late on Monday, the IMF's Coronel urged the government to "unleash the potential of the private sector" and "demonstrate that Zimbabwe is open for business".

"This will include enhancing efforts to tackle corruption, encouraging private sector investment, allowing the market to determine prices, promoting labour flexibility, and creating a stable legal and regulatory framework to reduce policy uncertainty," she added.

Meantime, the Confederation of Zimbabwe Industries (CZI) wants Mugabe's government to make it compulsory for wages and prices to be denominated in rand, to encourage wider use of the South African currency.

In a document quoted by the Sunday Mail the CZI said wider use of the rand would "transform the cost structures of both government and the private sector into soft currency from the current hard currency scenario, setting the stage for recovery in competitiveness".

News24

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