Zimbabwe economy outlook encouraging

Prof. Mthuli Ncube
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Like every economy across the world, Zimbabwe has inevitably been negatively affected by the Covid-19 pandemic, which has turned the global economy on its head.

However, the impact of the virus on the country may after all not be as severe as initially anticipated.

Market watchers believe it is not possible to tell with scientific exactness how it might pan out going forward as the disease has not yet been contained.

Besides taking a huge toll on human life, the coronavirus pandemic has wreaked global economies through disruptions in trade, tourism, production, productivity, global supply chains and various other integration channels.

Global economic growth is expected to contract by about 4,9 percent in 2020, from 3 percent projected in April 2020 by the International Monetary Fund (IMF).

Some advanced economies, which have been affected the most by the pandemic, are forecast to decline by as much as 8 percent.

Sub-Saharan Africa’s economy is expected to contract by 3,2 percent.

Zimbabwe has not been spared in so far as the pandemic is concerned.

The impact of the pandemic is being felt through low demand and depressed global prices for commodities, fewer tourist arrivals, disrupted global supply chains, slower global financial flows, foreign exchange remittances, less portfolio investments, currency volatility and high inflation.

Presenting the 2020 Mid-Term Budget Review on Thursday, Finance and Economic Development Minister Professor Mthuli Ncube said while all sectors of the economy were affected by the Covid-19 pandemic, there is variation in terms of severity.

Sectors such as tourism, non-food manufacturing, mining, financial services, transport and distribution and education were adversely affected.

On the other hand, health services; information, communication technology; manufacturing of food stuffs; and electricity and water had in fact recorded gains.

There has been significant capital outlay in fighting the pandemic, with $1,8 billion having already been allocated to various ministries, agencies and departments as at June 2020.

This comes as the Government in May unveiled a $18,2 billion economic stimulus package, which amounts to 28,6 percent of the 2020 Budget.

The package is designed to scale up production levels across all sectors of the economy, address constraints faced by a large section of small-scale industries, improve health facilities and reduce poverty and hardships to assist vulnerable groups in society.

Additionally, Minister Ncube said Government had also put in place other fiscal and monetary policy relief measures, which include corporate tax credits for Covid-19 donations, import duty on raw materials, interest rate cuts, reduction of statutory reserves and tax relief measures.

Without the interventions, the economy would contract more than the 4,5 percent that is now being projected.

Prof Ncube said: “A combination of Government intervention and external development support in mitigation of the Covid-19 pandemic is expected to alleviate deeper contraction of the economy to a projected 4,5 percent in 2020, against the initial budget projection of 3 percent growth.”

Economist Brains Muchemwa said the projected economic decline, while appearing to only be linked to disruptions caused by Covid-19 pandemic, would also be a factor of erosion of incomes, which averages 85 percent year-to-date.

“I think that spells more (harm) in terms of projected growth because incomes have collapsed 85 percent since January 2020, so you would not expect that if incomes have collapsed 85 percent, the purchasing power of consumers remain strong and support the economy, “ he said.

In its revised projections, the IMF expects the economy to shrink by 10,4 percent in 2020, worse than the 7,4 percent it estimated earlier.

A strong economic rebound of 7,4 percent is expected in 2021.

Government largely believes that the foreign currency auction system that was introduced on June 23 will stabilise the exchange rate and prices.

The inaugural auction saw an average weighted rate of $57,3 against the US dollar, while the last one held on Tuesday saw the rate climb up to 68,5 percent to the greenback.

The bulk of the resources were allotted to raw materials, machinery and equipment, in line with Government’s objective of increasing production in the economy.

“It is important to note that the country’s foreign exchange position is ideal for an auction system.

“As at May 31, 2020, total foreign currency inflows amounted US$2,35 billion, against foreign payments amounting to US$1,55 billion,” said Prof Ncube.

The Treasury chief said exchange rate levels and movements have far-reaching implications for inflation, competitiveness of exports, efficiency in resource allocation, international confidence and balance of payments equilibrium.

Before the auction system was adopted, inflationary pressures — which subsided in the last quarter of 2019 and in January 2020 — resurfaced from February to June 2020.

Annual inflation is now expected to gradually decline in the second half of this year, from the peak of 785,5 percent in May to 300 percent in December, according to Treasury.

Expenditure developments to June have largely been impacted by the need to accommodate expenditures arising from previous successive droughts, extreme weather conditions and the advent of the Covid-19 pandemic.

Total expenditure disbursements to June amounted to $30 billion against total collections for the half-year period of $34 billion.

But this has raised questions among analysts who queried how authorities could claim to have stayed within budget framework amidst the high inflation.

“The figures present a very rosy and well managed budget, everything is within budget when considering the revenues and expenditures, but when inflation is running at over 700 percent,you ordinarily do not expect the Government to be spending within budget,” Mr Muchemwa said.

He also noted that if the public expenditures were within budget, the Zimbabwe dollar exchange rate and headline inflation should have been stable.

Harare economist Blessing Murenga said Minister Ncube’s decision to widen bands for taxable incomes will boost consumer spending after the Treasury chief more than doubled the tax-free threshold from $2 000 to $5 000.

Mr Murenga said it was also important to note that Government had issued several Treasury Bills, including recently, to raise funding for public programmes, including requirements for the Covid-19 pandemic. – Sunday Mail