Govt in false hope as economy enters ‘third cycle of hyperinflation’ – Biti

Former Finance Minister Tendai Biti has slammed the Treasury for instituting unsustainable “command economics” when the economy has already “entered a third cycle of hyperinflation”.

Biti was responding to the Reserve Bank of Zimbabwe (RBZ)’s assertion on Tuesday that of the wholesale foreign exchange auction for banks, out of US$30 million on offer, only US$10 million was purchased by banks for onward sale to banks’ clients.

This seemingly shows that government believes that businesses failed to acquire the whole US$30 million because of the fact that ZWL has become scarce.

While acknowledging this as a positive outcome, the Harare East legislator said this was sustainable since it was a result of a “myopic measure” by the treasury to attempt to control money supply by draining RTGS in circulation.

“Command economics doesn’t work and will not work. The attempt to control money supply by draining RTGS in circulation is a myopic measure that can only bring temporary relief. Permanent solution lies in stopping corruption and fiscal consolidation . In short, eat what you kill,” Biti said.

“Real danger is that the economy has entered a third cycle of hyperinflation. That month on month inflation for May was 75% is frightening. This after all is a blended inflation created to hoodwink a naive International Community desperate to support a Debt Relief Effort at odds with hard reality and common sense.

“Official inflation was 230% in January 2023 but blended inflation devalued same to 92 % in February 2023. It follows that bar the fraud & mascara of a blended rate Zim annualized inflation is above a thousand per cent.

“In May alone bread prices increased from ZWL 4000 to ZWL12000 , a monthly increase of 200%. Hyperinflation creates a self sustaining motion of economic activity not related to reality.This is the essence of a crisis over accumulation. That crisis generates a free fall of the exchange rate.

“The Zim dollar is in free fall . In 2023 it lost an average of -1.83% per day with a zenith fall of -24.6% reached on 7 June 2023.The election season will exacerbate the free fall despite the current stand still.

“The crisis is hitting hard wananchi whose disposable incomes have been severely eroded. Aggregate demand has shrunk across the length and breadth of the economy and all growth projections have been revised downwards. Zimbabwe is thus in another recession . Wananchi, It will be a long long winter of gloom and glum.”

Professor Gift Mugano also argues that the fact that only US$10 million out of US$30 million was purchased by banks from the auction, means that businesses no longer rely on the same platform to acquire foreign currency.

“I see that there is so much excitement within the GOZ (government of Zimbabwe) corridors coming on the back of the fact that out of US$30 million put on offer at the auction, only US$10 million was purchased by banks for onward sale to banks’ clients.

“From GOZ’s perspective, this is evidence of the success of the recently pronounced policy measures. GOZ firmly believes that businesses failed to acquire the whole US$30 million because of the fact that ZWL has become scarce,” he said.

“I would like to argue that businesses are highly liquid in USD and as such businesses no longer rely on the auction but self-generated forex – driven by dollarisation.

“The question the GOZ should ask itself is that if the import bill between April – May 2023 rose by 20.2%, i.e., from US$701 million (in April 2023) to US$851 million (in May 2023), where is this forex is coming from when the very same govt was allocating paltry USDs at the auctions?”