Friday, December 02, 2005

Murerwa a false prophet.

Zimbabwe's optimistic and creatively defunct finance minister presented next year's budget, which to quote commentary on last year's budgetery announcement was just another "damp squib." Predicting GDP growth of 3.5% and an inflation decline to under 80% by year end, Murerwa presented a budget proposal riddled with fundamental contradictions.

Zimonline picks apart the new budget charging that it lacks innovation and a dose of that essential ingredient to all things progressive i.e. truth.
'Murerwa's budget even contradicted itself seeking to raise expenditure by about four times from last year's $27 trillion and at the same time forecasting annual inflation to drop from more than 400 percent now to 80 percent by December 2006, they said.

"If inflation is coming down to 80 percent by the end of next year, why then do we need to raise our expenditure to levels that are about four times this year's? This is a contradiction," said Zimbabwe National Chamber of Commerce (ZNCC) president, Luxon Zembe.'
This leads to another glaring loophole in the minister's line of thinking. If expenditures are quadrupling and revenues are going to decrease (because of the taxt relief), how will the government finance the deficit? With no creditors will to buy Zimbabwe's debt, it's clear they are planning on deficit financing i.e. printing money. This would be fine in Murerwa's fairytale land except for the fact that superflous growth in money supply (by printing money) erodes a currency's value. That is called inflation. Yet he wants to claim that inflation will decrease. The economy doesn't work like that.

Economics is a lot bigger than the lies and illusions Murerwa is selling. More important than the numbers which he might aspire to is this maxim which should be the golden rule of all economic policy making: people respond to incentives. In order to stimulate the creativity that will distill growth of the economy, it is of paramount importance that policymakers decipher the most powerful incentives and line these up to improve the economy. Sadly such sagacity transcends the abilities of the nation's economic policymakers.

Unlike the minister's boldly wrong predictions, the outlook is bleak for Zimbabwe's economy. The recession is not yet going to end.

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