Zimbabwe economy set for 2021 recovery

The Zimbabwe economy is anticipated to recover and record GDP growth of about 7,4 percent in 2021 before moderating to around 5 percent thereafter, according to Finance and Economic Development Minister Mthuli Ncube.

Presenting the 2020 Mid-Term Budget Review in Parliament last week, Minister Ncube said the budget out-turn up to the half-year period, which showed a surplus position and within budget spending, enables the country to avoid tabling a Supplementary Budget.

He, however, said the economy will contract by 4,5 percent in the Covid-19 hit period.

The projection, which is against previous projections of a 3 percent growth, is much better than the IMF’s forecast of a 10 percent contraction and the World Bank’s 10,4 percent decline.

Minister Ncube, however, said the economy would come worse off if the country does not get a bailout in addition to the $18 billion announced after the outbreak of the Covid-19 pandemic.

Government also requested US$300 million and Development Partners have pledged US$202,6 million, of which US$26,9 million has already been disbursed.

“In the absence of the above stimulus package and assuming prolonged and severe impact of the crisis, the economy would contract severely,” said Minister Ncube.

He said the impact of the coronavirus pandemic on the Zimbabwean economy is being transmitted through various channels including but not limited to reduced tourist arrivals due to travel restrictions and disruption of global supply chains for both raw materials and final products and services.

However, some sectors were also recording notable gains, according to Minister Ncube.

“While all sectors of the economy were affected by the Covid-19 pandemic, there is variation in terms of severity, with sectors such as tourism, non-food manufacturing, mining, financial services, transport and distribution and education adversely affected.

“On the other hand, health services, ICT; manufacturing of food stuffs and electricity and water had gains,” said Minister Ncube.

As a result, there has been some changes to various sector contributions to GDP, with the transportation and communications sector now contributing 11 percent to GDP up from a contribution of 8 percent in 2018.

Administration and support services also had an increase in GDP contribution from 7 percent to 8 percent.

The manufacturing sector, agriculture, mining, electricity, distribution, hotel and restaurants all saw their contribution to GDP drop by 1 percentage point each.

Growth for mining sector is now projected to slow-down to -4,1 percent in 2020, reflecting the impact of Covid-19 and other challenges including perceptions around retentions, erratic power supply and loss of skills in the mining sector.

Minister Ncube said beneficiation and value addition of minerals to create more jobs and earn more foreign currency are priorities for the sector. The manufacturing sector, which Minister Ncube said continues to face investment deficit and other challenges relating to electricity and foreign currency supply and inflation, is expected to contract by -10,8 percent in 2020 against 1,9 percent originally projected.

Minister Ncube said top on the agenda for this sector are policy reforms on improving the investment environment currently ongoing under the ease of doing business programme and containing the cost of doing business by addressing cost-effectiveness challenges such as energy, road networks, security, financing, bureaucratic restrictions, corruption, dispute settlement, and property rights, among others.

Tourism, which has higher weight was particularly most affected by the Covid-19 pandemic through restricted travel, and indications are that the sub sector will contract by -7,4 percent in 2020.

The tourism sector’s recovery strategy during the last half of 2020, is expected to remain inward looking with initial focus on domestic tourism while monitoring and assessing implications from opening to international tourism.

Meanwhile, revenue collections seem to be still in line with the previous projections for the period January to June 2020.

Revenue for the period is estimated at $34,2 billion, against a target of $32,1 billion. This resulted in a positive variance of $2,14 billion or 6,7 percent of projected revenues, notwithstanding the slowdown in economic activity that has been induced by the Covid-19 pandemic.

Tax revenue continues to account for the bulk of the revenue with collections amounting to $33,4 billion or 97,6 percent, while non-tax revenue contributed $828 million or 2,4 percent of total revenue.

Total expenditures disbursements to June 2020 amounted to $30 billion, which means the country might have closed the period with a budget surplus of $4,2 billion notwithstanding need to accommodate expenditures arising from previous successive droughts, extreme weather conditions and the advent of the Covid-19 Pandemic.

Interestingly, ministries have on average utilised 46 percent of their votes as at June 2020. This also implies that 54 percent of the original 2020 Budget remains unutilised.

Minister Ncube said the out turn enables us to operate to the end of the year as we reallocate to cover the critical needs, especially those related to Covid-19 and social protection.

“This position enables us to avoid tabling a Supplementary Budget, given our current levels of spending.”

He said Treasury will be dealing with arising expenditure pressures as we consolidate our fiscal position during the remainder of the year, taking account of revenue performance against inescapable reprioritised expenditures. – Business Weekly