HARARE,– Zimbabwe’s entrenched deflation went up sharply to -2.65 percent year-on-year in April after adding -1.45 percentage points on the March rate of -1.20 percent as deflationary pressures persist, the national statistics agency said on Friday.

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Inflation eases to -2.65pct – ZIMSTAT

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On a monthly basis, inflation shed -0.86 percentage points on the March rate of -0.03 percent to -0.89 percent, the Zimbabwe National Statistics Agency said.

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Deflationary trajectory is seen continuing until the end of the year and the International Monetary Fund (IMF) has projected the trend to continue in 2016.

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In economics, deflation is a decrease in the general price level of goods and services. Zimbabwean prices are see decreasing in a cost pull direction relative to rising strength of the dollar against other regional currencies where most of the imports are coming from.

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Zimbabwe’s import bill of US$3,3 billion is not reflecting a country that is facing a severe liquidity crisis but an economy with productivity challenges, a bank chief has said this week.

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The country’s huge trade deficit averaging US$250 million per month is creating a situation where money, which is supposed to circulate locally, thereby creating liquidity, is in fact being exported by financing imports.

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The gap is expected to widen further as the local industry continues to struggle to meet consumer demand. The huge deficit showed that there was a market readily available in Zimbabwe which local manufacturers could tap into.

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Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels). Inflation reduces the real value of money over time; conversely, deflation increases the real value of money –- the currency of a national or regional economy. This allows one to buy more goods with the same amount of money over time.

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Economists generally believe that deflation is a problem in a modern economy because it increases the real value of debt, and may aggravate recessions and lead to a deflationary spiral.

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Although the values of capital assets are often casually said to “deflate” when they decline, this should not be confused with deflation as a defined term; a more accurate description for a decrease in the value of a capital asset is economic depreciation (which should not be confused with the accounting convention of depreciation, which are standards to determine a decrease in values of capital assets when market values are not readily available or practical).

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Speaking at Barclays Bank’s annual general meeting, managing director, George Guvamatanga, said Zimbabwe’s economy could perform better if the money used to import goods went towards capitalising local industries and production.

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“The economy does not reflect liquidity challenges when the country’s import bill exceeds US$3 billion…It could have been better for local industries if that money was being used to capitalise local production. The economy has productivity issues rather than liquidity challenges; there is need for structural adjustments,” he said.

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Guvamatanga said government should implement significant and decisive interventions to enhance investor confidence to promote local production to reduce the country’s import bill.

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Last year’s Confederation of Zimbabwe Industries Manufacturing Sector Survey said local companies were not exporting because their products had become uncompetitive on the export markets. The companies also said the shortage of working capital had forced them to focus on meeting local demand while the high cost of production had rendered their products expensive on the domestic market, a situation that had given cheap imports an advantage.

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Recovery in the export sector was sluggish while diaspora inflows were stunted due to adverse global economic developments. Capital inflows had remained subdued on account of growing investor uncertainty.

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“I still maintain that an economy facing liquidity challenges would not import US$2 million worth of apples in a single month or US$700 000 worth of mineral water and other beauty products. It will make a big difference of generating employment and enhancing circulation of liquidity locally if such goods are produced locally,” Guvamatanga said.

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Guvamatanga said the economy had money but much of it was going towards imports. Failure to access lines of credit had worsened the situation.

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The Reserve Bank of Zimbabwe said the country was importing goods worth about US$6 billion annually while exports amounted to about US$3 billion.

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Analysts said local companies should be “innovative and smarter” and take advantage of available opportunities to sell.

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Many analysts said there was unlikely to be reduction in the trade deficit in the short to medium term if industry remained under-capitalised.

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Imports are heavily skewed in favour of consumptive products.

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Commenting on the bank’s outlook, Guvamatanga said the bank would continue operating under its safe banking model but would grow a quality loan book and increase participation in key sectors of the economy.

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“As Barclays we will build on most things that we started in 2014. We will still continue with our safe banking model and within this safe banking model we would like to increase participation in key sectors of the economy and continue to widen and adapt our product overlook,” he said.

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Year to date profit was slightly above budget while the cost of funds was still in line with 2014 levels. Total assets on the balance sheet were up nine percent to US$319 million.

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Guvamatanga said the bank would continue with its thrust of increasing interest earning assets although deposits were still largely demand balances.

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The loan loss ratio was below one percent.

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Loans to deposit ratio declined to 50 percent from 59 percent during same period in 2014 while the capital adequacy ratio remained at 20 percent.