Accessibility links

Breaking News

Zimbabwe to Announce New Monetary Policy, Seeks to Prevent Economic Collapse

The new governor of Zimbabwe's Central Bank is to announce a new monetary policy this week, as the country is faced with hyper-inflation and high interest rates. Experts say the official faces difficult choices, none of which is likely to provide much relief in the short term.

Zimbabwe is running out of money fast, according to veteran economist John Robertson. He says the government needs to borrow the equivalent of $2 billion to finance its operations, and that much money is not available in the Zimbabwean banking system. At the official exchange rate, that would be about 1.5 trillion Zimbabwe dollars.

Mr. Robertson's opinion is shared by other economists.

Part of the problem is that interest rates, even at up to 500 percent, are lower than the inflation rate. That results in no incentive for ordinary Zimbabweans to keep their money in the banks. In addition, the high interest rates are a huge burden for businesses, including farmers who have borrowed money to finance the purchase of seeds for the new season.

Many of those farmers are senior members of, or supporters of, the ruling party, who obtained farms in the government's controversial land reform program. Some of them have borrowed many millions of Zimbabwe dollars to finance their new farms, and now they can not afford to pay the rising interest on those loans.

Well-placed sources at several banks say they expect the well-connected new farmers to put pressure on the government to lower interest rates, which would further undermine the value of the Zimbabwe dollar and create more inflation.

Several economists say one of the consequences of the high interest rates will be many more bankruptcies, in an economy where most of the largest factories have either shut down, or are working only limited hours.

Meanwhile, the prices of most consumer goods are doubling every 90 days, and a shortage of printed currency makes it difficult for people to buy what they need, even if they have money in the bank or paychecks to cash.

It is against this backdrop that the new governor of the Reserve Bank, Gideon Gono, is due to announce a new monetary policy on Thursday.

Economists say he has two options. One is to leave the situation to find its own levels, which they call a dangerous route. The other is to try to overcome the crisis in the short term, by printing more money, or higher-value bank notes. The experts say that is also dangerous because it will lead to still more inflation.

In any case, the government does not have enough money even to pay for the printing of more money.

Economists say the crisis will deepen over the Christmas period, because it is bonus time for the small number of Zimbabweans who are still working.

And in early January, a new aspect of the crisis will come to the forefront. Parents will be looking for huge amounts of cash to pay increased school fees, which are being raised by as much as 2,500 percent.

The combination of factors is leading many analysts to say Zimbabwe's economy is reaching the point of collapse. But that has been said several times during the past two years as the once-prosperous country has spiraled into crisis.