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Government is currently incapacitated to use quantitative easing to inject liquidity in the economy, therefore it must work on soft infrastructure issues to attract investment flows, economists say.

This comes as the country’s annual inflation has continued on a downward trajectory attributed to an elusive and g dollar, which has hamstrung efforts to rejuvenate the fortunes of many firms.

Zimbabwe has since 2009 been using a basket of currencies after scrapping the local unit in 2009 because its value had been eroded by a decade of western induced economic instability.

The country now uses a basket of currency, dominated by the ever strengthening dollar, which has been difficult to obtain enough to drive the anticipated growth the economy can achieve.

Economist and Oxlink Capital managing director Mr Brains Muchemwa noted that at a time when inflation is trending down, Government’s hands were tied to significantly influence liquidity.

Arguably, this could be the single biggest handicap to Government’s ability to ensure faster sustained growth than any other factor at a time Zimbabwe suspended printing and minting own currency.

Mr Muchemwa said, “Firstly, (Government) is incapacitated, from a quantitative easing perspective, to inject liquidity into the economy and unlock some of the gridlocks that have clogged the system.”

Secondly, Mr Muchemwa said, the Government’s “expenditure mix is largely skewed towards consumptive expenditure”, which required urgent commitment to address the problem.

Against this background, the Harare economist said, “Government’s ability to channel the scarce resources towards areas that have high multiplier effects on employment creation are very limited”.

Finance Minister Patrick Chinamasa last year presented a $4,1 billion National Budget with more than 75 percent of the amount going towards recurrent expenditure such as civil service salaries.

As such, weak consumer demand, arising from company closures and rising household indebtedness, combined with the inability of the banks to continue extending credit, had created a huge void in the economy, which had managed to keep inflation in the negative territory. Amid exponential decline in inflation, Mr Muchemwa said Government needed to work on soft infrastructure aspects that would result in increased liquidity inflows into the economy to induce faster growth.

Inflation in Zimbabwe has continued southward on account of overly g dollar, making imports cheaper and exports more expensive while prices have had to trend lower external prices.

“The only available option, which unfortunately does not bring results overnight, is to work on soft infrastructure aspects so as to stimulate both local and international capital to oil the economic system,” he said.

Soft” infrastructure refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as policy, financial system, the education system, the health care system, the system of Government, law enforcement and ICTs. Government is however not resting on its laurels. It has left no stone unturned to address teething issues, taking bold steps to enhance the doing business conditions while also clarifying key policies

Source : The Herald