Economic woes heighten as hyperinflation looms in Zimbabwe

By Chad Williams

Zimbabwe’s economic freedom score is 33.1, making its economy the 173rd freest in the 2022 Index. The country is ranked 46th among 47 countries in the sub-Saharan Africa region, and its overall score is below the regional and world averages.

With that said, recently, the southern African country’s inflation rate hit a new record high, surging to a whopping 400%. The latest figures from the Zimbabwe National Statistics Agency showed that the country’s annual inflation rate reached 191% last month, but soon crept to over 430% as rising fuel, basic food items and the cost of grain continue to skyrocket.

Taking to Twitter, constitutional lawyer and former Zimbabwean finance minister Tendai Biti said that this was the third time in 14 years that the regime has pushed the economy into hyperinflation territory, and says that those in positions of power are not focused on resolving the crises, but rather focused on the pursuit of the power retention agenda.

Zimbabwe’s President Emmerson Mnangagwa hailed 2022 as the “Year of Economic Growth”, but persistent inflation is hampering the country from flourishing. Analysts say that without tackling entrenched corruption, it is doubtful that the government can help the majority of Zimbabweans who are struggling to survive.

The Africa Development Bank Group says that before the Covid-19 pandemic, Zimbabwe’s economy was already in recession, contracting by 6.0% in 2019. Output fell because of economic instability and the removal of subsidies on maize meal, fuel and electricity prices; suppressed foreign exchange earnings; and excessive money creation.

According to the Afdb, the onset of the Covid-19 pandemic and continued drought led to a 10% contraction in real GDP in 2020. The bank says that although foreign exchange reforms were instituted in June 2020, which dampened an inflation that raged at an annual rate of 838% in July, fiscal and current account deficits also recovered after July, but both deteriorated for the year as a whole.

As of June 20, the price of fuel per litre hit the ZWD539.560 mark per litre, according to Global Petrol Prices.com, making Zimbabwe the African country with the highest fuel costs.

Zimbabwe’s central bank said last week that the price of bread would go down after it held talks with an association of bakers. Governor John Mangudya said bakers had complained over a lack of access to foreign currency to import wheat and procure fuel for deliveries.

The Grain Millers Association of Zimbabwe (GMAZ) in April also increased the prices of maize and wheat by 50% and 17.8% respectively.

Analysts say that the rising price of fuel has directly impacted the price of bread in the southern Africa country that has been battling rapidly growing inflation, leaving the poor worst affected.

Zimbabwean health workers went on strike in June after rejecting a 100% wage hike. Public health workers and other civil servants in the southern African country are demanding salaries in US dollars as inflation continues to bite.

In an open letter penned to government authorities, informing government of their intention to strike, striking doctors said that the decision to strike was not taken lightly and that they were fully cognisant of the human costs related to any action of this kind, but the conditions of service, specifically the remuneration of health-care workers, are presently so poor that most health workers can no longer afford the service they provide, and nor are they able to look after and fend for their families.

“It is common knowledge that the economic conditions prevailing in the country have rapidly deteriorated, especially over the past three months. This is something that the government has acknowledged and is reflected by the government’s continued review of tariffs and expenses. State-related enterprises have also reviewed their tariffs on a continued basis.”

Fast forward to July 2022, the central bank of Zimbabwe announced that it would be introducing and selling gold coins this month as a store of value to tame runaway inflation, which has considerably weakened the local currency.

The gold coin would contain one troy ounce of gold and would be sold by Fidelity Gold Refinery, Aurex and local banks. Central Bank governor John Mangudya said that the coins would be available for sale from July 25 in local currency, US dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost of production.

The “Mosi-oa-tunya“ coin, named after the Victoria Falls, can be converted into cash and traded locally and internationally, the central bank said.

According to the World Bank, disinflation policies were effective in bringing down inflation in 2021, with inflation slowing from 838% in July 2020 to 60.7% in December 2021. Monetary policy was further tightened by year end, and in early 2022 to calm inflationary pressures from continuing distortions in the foreign exchange market and rising international prices.

In 2008-2009, hyperinflation reached 500 billion%, according to the International Monetary Fund. At the time, 100 trillion Zimbabwean dollar banknotes were not enough to buy basic groceries.