Economic Meltdown
Background to the Economic Crisis in Zimbabwe: By Eddie Cross
1. At Independence in 1980 we took over an economy battered by 15 years of armed conflict, mandatory UN sanctions and political isolation. Debt was small – about US$700 million or 17 per cent of GDP. The Zimbabwe dollar bought you two US dollars.
2. In the first two years of Independence the economy grew 24 per cent, this was followed by 15 years of steady growth – about 5 per cent per annum. Inflation was held at about 9 to 12 per cent per annum. The budget deficit was large at 8 to 9 per cent of GDP and by the year 1995 the national debt had reached US$5 billion or 60 per cent of GDP.
3. In 1997 the economy peaked at US$8,5 billion, exports at US$3,4 billion and employment at 1,4 million. At that stage we were: -
a. The largest exporter of tobacco in the world after the USA.
b. The sixth largest producer of gold.
c. The biggest market for South Africa in Africa.
d. The second largest economy in the region and with the third highest GDP per capita.
e. Life expectancy was about 60 years and we had a literacy rate of 85 per cent with 95 per cent of all children of school going age in school.
f. Inflation was 12 per cent.
g. The exchange rate was 12 to 1 against the US dollar.
4. In 1997 the State made several serious errors of judgment: -
a. They paid the war veterans nearly 300 million US dollars in war service gratuities without budgetary approval.
b. They sent 11 000 troops to the Congo where they spent 4 years and used nearly US$2 billion in scarce resources fighting a war to keep Kabila in power.
c. They pushed the budget deficit over 10 per cent of GDP and lost the support of the multilaterals.
5. In 2000 they began the farm invasions and in the process reduced commercial farm output by 80 per cent – with still no sign of recovery. These plus deficiencies in the electoral process led to a further loss of international standing and increased isolation. There was a near total collapse of confidence.
Today.
Zimbabwe today has an economy that has shrunk by half to just over US$4 billion, exports by two thirds to US$1,4 billion. Employment has declined by 45 per cent and industry by 60 per cent. Agricultural output this year will be 70 per cent down on the level achieved in 1997. Mining output is down and falling rapidly. Tourist arrivals have fallen from over 1,2 million in 1997 to less than 300 000 this year.
Life expectancy has halved, income per capita has also declined substantially. National population has fallen from an anticipated 16 or 17 million to just over 10 million today with 4 million Zimbabweans outside the country and some 2 to 3 million incremental deaths over and above normal mortality. 60 per cent of all children are not in school and all State controlled institutions are in dire straights.
For a country not at war or under sanctions, these are the most precipitous declines in economic and social welfare ever witnessed. They represent a calamitous state of affairs with no sign of any resumption of either stability or recovery. In fact the decline has accelerated in recent months very dramatically.
The US dollar is now trading at 20 million old Zimbabwe dollars to one in the open market compared to 1 to 2 in 1980 and 12 to 1 in 1997. Nothing tells you more about the collapse in the economy than that single statistic.
Why has this happened?
1. The Zimbabwe government has abandoned any pretext of fiscal and monetary discipline as the budget deficit is now at an astonishing 50 per cent of GDP. Sustainable deficits are thought to be about 3 per cent.
2. The government has abandoned the rule of law and has thrown caution to the winds in its delinquent behavior.
3. There has been a total collapse of confidence in the government and in the economy. Capital flight has reached unprecedented proportions of nearly 10 per cent of GDP per annum.
4. All sectors of the economy are in steep decline with no turn around in sight.
5. All the key State institutions are basically bankrupt and unable to undertake their roles as service providers.
6. Corruption has reached monumental proportions with the State and its agents consuming anything up to a third of total GDP on corrupt activities and expenditure including massive transfers of funds to external accounts.
7. A total loss of credibility as a State and a Government. We have become a regional embarrassment and an international pariah.
The final consequence of this series of events is that inflation is now over 3000 per cent per annum and the risk of Zimbabwe becoming another failed African State is increasing daily.
Eddie Cross
Posted by Izzy Mutanhaurwa at 3/29/2007 11:39:00 PM
crybelovedzimbabwe.blogspot.com
"...If Robert Mugabe had set out with the deliberate goal of trashing his country's economy, he could hardly have been more effective. You might say he's pioneered his own field: undevelopment economics. Starting with a disastrous land reform that placed land into the hands of political cronies, rather than those who knew anything about farming, or needed sustenance, he has turned a huge net food exporter into a net importer . . . when they can get the hard currency to import. Each successive foolhardy economic policy, designed to cover up some of the problems that have sprung up due to his last terrible, horrible, no good, very bad economic idea, has made things hideously worse. He has brought on hyperinflation, decimated the country's financial system and industrial base, crippled its agricultural output, mired the government in unrepayable debt, and reduced virtually all of his citizens to appalling poverty..."
meganmcardle.theatlantic.com |
