The United Nations Conference on Trade and Development (UNCTAD) raised fears of stagflation in Zimbabwe’s economy due to soaring food prices.
Stagflation is characterized by slow economic growth and relatively high unemployment or economic stagnation which is at the same time accompanied by rising prices, according to Investopedia.
There has been a surge in the use of the US Dollar in the market. Some service providers pegged prices of services in line with parallel market exchange rates so as to lure customers to pay using forex. This comes as black market rates have started to rise with quotes now past the 50x mark.
Six countries namely Argentina, Brazil, Nigeria, South Sudan, Sudan, and Zimbabwe saw prices of one or more basic food commodities at abnormally high levels in mid-2021 that could negatively impact on access to food, according to the Food Agriculture Organisation.
“In situations of subdued economic activity and generally low inflation pressures, monetary policies have often been accommodative, despite soaring food prices that have created tensions, especially in Central and West Africa,” reads part of the UNCTAD’s Trade and Development Report 2021.
“Nevertheless, several countries have registered double-digit inflation (or even triple-digit in the case of Sudan). These include, inter alia, Zimbabwe, South Sudan, Angola, Libya, Zambia, Nigeria, and Ethiopia, which all face stagflationary threats.”
Zimbabwe’s year on year inflation is targeted to close the year below 10%, which translates to a tight money supply monitoring, thereby reducing the chances of a huge interest rate cut in 2021, in order to achieve the target.
Treasury chief Mthuli Ncube is targeting to set aside close to 50% of US$961 million worth of Special Drawing Rights (SDRs) as reserves to support the local currency. The remaining balance is expected to be deployed towards the purchase of vaccines, equipping of hospitals and construction of schools, road rehabilitation and other infrastructure projects.
There are also plans to set up a revolving Fund to avail funding to the productive sectors of the economy such as the manufacturing, agriculture, and mining sectors – Harare