FROM the great lockdown to the great economic rebound. Zimbabwe’s economy is poised for continued growth after enduring a fourth wave of Covid-19 infections towards the end of last year that further constrained activity and took a heavy toll on its people.
The pandemic has had telling effects on the global economy. Its effects were felt more in developing countries like Zimbabwe whose revenues from sectors such as tourism were grossly affected by the inability to travel freely as a consequence of Covid-19.
But still in the midst of the pandemic, projecting what the future holds is an important exercise for business and governments looking to plan ahead. It is in that light that in 2020 and in the midst of the global pandemic, the Second Republic launched the National Development Strategy 1 (NDS1), the Government’s economic blueprint running from 2021 to 2025, that is anchored on devolution and decentralisation as well as the prudent use of public resources.
NDS1 is part of the Government’s Vision 2030 which is centred around achieving an upper middle-income economy by the year 2030.
The vision has been pursued from various angles, but there are three primary building blocks that anchor the achievement of this goal: the Transitional Stabilisation Programme (TSP) (2018-2020), the First National Development Plan (2021-2025) and the Second National Development Plan (2026-2030).
Zimbabwe’s broad range of fiscal, monetary and health responses to the crisis have supported its recovery and, along with economic reforms and policies like NDS1, are helping to mitigate a longer-lasting adverse impact of the crisis.
The reforms being implemented have set the economy on a sustained growth trajectory, and poised for attaining the Vision 2030 aspirations.
With a growth projection of 7,8 percent for the year 2021, Zimbabwe’s economy is among the high performers under difficult Covid-19 conditions and well above the 3,4 percent average growth for Sub-Saharan Africa.
Alongside a GDP growth, average industry capacity utilisation is gradually picking up, reaching 47 percent and 54 percent in the first and second quarter of 2021, respectively. By year end, it was projected to average 65 percent, reflecting output gains from ongoing macro-economic stabilisation and improved access to foreign currency through the foreign currency auction system.
Economic reforms through NDS1 have also seen inflation retreating. In the same vein, prudent management of public finances has produced minimal budget balances ranging from 0,2% of GDP in 2019, 1,7% in 2020 and a modest projected deficit of -0,5% in 2021. This judicious budget management has provided capacity and scope for channelling more resources to essential programmes such as infrastructure and social services.
Domestic GDP growth in 2021 was strong at 7,8 percent mainly buoyed by a good 2020/21 agriculture season, higher international mineral commodity prices, a stable macroeconomic environment that facilitated domestication of some value chains and better management of the Covid-19 pandemic.
In 2022, the economy is projected to grow by 5,5 percent, underpinned by higher output in mining, manufacturing, agriculture, construction as well as the accommodation and food services (tourism) sector.
The underlying assumptions for the projected growth include the following: normal to above normal rainfall pattern, subdued Covid-19 pandemic; relatively stable exchange rate and declining inflation; and favourable international mineral prices.
The main sectors driving growth are agriculture, mining, manufacturing, electricity, accommodation and food services, as well as construction.
As 2021 was winding down, annual inflation continued to decline. The disinflationary path was underpinned by both tight fiscal and monetary policies. Conservative reserve money targeting and the introduction of the foreign exchange auction system brought stability in the foreign exchange market and consequently inflation.
Potential risks to the above projected growth include the uncertainty in the future path of the pandemic and exchange rate volatility, which may contribute to high inflation. Other risks relate to under-performance and viability of some of the State-Owned Enterprise (SOEs), extreme weather conditions, retreat in international commodity prices and higher than anticipated international oil prices.
New infections have fallen significantly and the number of vaccinated locals has risen to 4 153 879, although another resurgence is not impossible even if it seems unlikely today.
The Second Republic expects the local economy to expand as the Reserve Bank of Zimbabwe continues to mitigate black market forex forces that have been stifling economic growth and influencing high inflation rates.
But these projections are conditional on a successful deployment and spread of effective Covid-19 vaccines and continued accommodative fiscal, financial and monetary conditions.
The widening of the parallel market premiums to over 50% beginning in August 2021, threatens to reverse the gains made on the inflation front.
The widening gap is partly attributed to general indiscipline by market players. The increase in international food and energy prices, as well as global inflation continue to exert additional inflationary pressures on the domestic economy.
Analysts say output could contract in the first quarter of 2022 because of continued under-capitalisation by local businesses who are weary of spending the little cash reserves that they have without a guarantee of a sustained operation period. However, economic growth is more likely to pick up in the second half of the year, which is also when Zimbabwe expects to have vaccinated a substantial share of its population.
Supported by NDS1, in second quarter Zimbabwe expects the economy to revert to its pre-pandemic level of output.
Source: Sunday News