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Zimbabwe devalues currency
07/09/2007 09:07 - (SA)
Angus Shaw
Harare - Zimbabwe has sharply devalued its currency, from Z$250 for every $1 for most official transactions to Z$30 000.
However, the United States dollar was still fetching up to 250 000-1 on the illegal market on Thursday, said dealers. Zimbabwe was in economic crisis, with the world's highest official inflation of 7 634%, though independent estimates put real inflation closer to 25 000%.
Finance Minister Samuel Mumbengegwi abolished a two-tier exchange rate in a budget announcement to the parliament in Harare in fixing the official rate for all transactions at Z$30&nbps;000 to a single US dollar on Thursday.
The official two-tier exchange rate had stood at 250-1 for most official transactions and 15 000-1 for transactions involving approved funds mainly of foreign organisations and Zimbabweans earning hard currency abroad.
Devaluation 'movement in right direction'
In his statement on supplementary national budget allocations in the worst economic crisis since independence, Mumbengegwi said the devaluation was needed in a package of measures in the inflationary economy.
Other reforms were a tax waiver affecting low-income earners and increases in excise and stamp duties, importation and vehicle levies and some other taxes.
Corporate executive Luxon Zembe, a former head of the National Chamber of Commerce, said the devaluation was "movement in the right direction", but the gap between the official rate and the real market rate needed to be narrowed much farther.
He described Mumbengegwi's announcement on tax breaks and some of the budget changes, as "something to smile about but it's not a broad smile".
He said: "We did not see any clear measures to stimulate growth."
Finance ministry to finance deficit
An across-the-board price freeze imposed since June 26 had left shelves bare across the country bare of corn meal, meat, bread and other staples, with producers arguing they were being asked to sell goods at below cost.
Mumbengegwi said low income tax breaks would increase spending power in the economy and encourage production. He said because of inflation, government ministries overspent on their budgets for the first half of the year.
Spending on civil service salaries alone - the biggest single expenditure - was nearly double the amount budgeted for after government officials received a series of pay raises meant to cushion them from inflation.
Foreign loans and balance of payments support to the government dried up and the finance ministry would finance the deficit with local borrowing, he said.
The government had said it had printed extra money to meet its shortfalls seen as spurring inflation in the stricken economy.
Mumbengegwi said the government was forced to impose the June 26 price controls to stop "the economic carnage of hourly price increases" being used as a political instrument against the government.
- AP
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