Three zeros were knocked off Zimbabwe's dollar exchange rate to curb inflation recentlyJOHANNESBURG, 22 Sep 2006 (IRIN) - The rule of law is vital to getting Zimbabwe's economy back on track, according to a senior International Monetary Fund (IMF) official.
Changes in economic policy and exchange market reforms might help lower the inflation rate, commented Siddarth Tiwari, deputy director of the IMF's African department, but "the rule of law is an important part" of restoring business confidence in the country. "If you do not convince the private sector, [economic reforms] are not going to work."
Zimbabwe's ruling party, in power since independence in 1980, has come under international criticism for its heavy-handed response to opposition, deepening political divisions.
The annual inflation rate is currently around 1,200 percent - the highest in the world - but the IMF has warned it could shoot past 4,000 percent next year if current policies are maintained. Shortages of foreign currency to pay for fuel, food and other commodities, and 70 percent unemployment have accelerated the economic meltdown.
The IMF's global economic outlook, unveiled this month, pegged gross domestic product at -4.7 percent - the lowest on the continent - but a slight improvement from -5.1 percent last year.
"The country is in a difficult situation. It has faced 3, 4, 5, 6 years of continuous output decline, a rise in prices...increase in poverty, a decrease in public services, increasing HIV/AIDS rates," warned Tiwari, adding that Zimbabwe's prospects were "grim".
He was not optimistic about the benefits of recent reported foreign loans. "While financing will be helpful to Zimbabwe, fundamental changes in economic policies are needed. I think I would like to note that there is substantial goodwill on the part of the international community to help Zimbabwe, but the first step has to be taken by the authorities." Last week, the government revealed a package of foreign loans worth nearly US$500 million, including a $200m facility from China.
Tiwari pointed out that Zimbabwe's plummeting economy had also affected the continent's growth. "As you know, since 2004 we have now inflation at single digits as an average in Africa ... In fact, if you exclude Zimbabwe, the average inflation rate across the region should decline from above 8 percent in 2005 to below 7 percent this year, and this decline should continue in 2007".
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