Zimbabwean economic growth seen at 4,2 percent

ZIMBABWE’S economy contracted by 10% last year and is envisaged to grow by 4,2% in 2021 if effective measures are taken to stabilise foreign exchange and avoid excessive money creation, the African Development Bank (AfDB) said in a statement on Friday.

The pan-African lender had previously projected a 5,6% growth.

The 4,2% growth rate is below the 7,4% projected by the Reserve Bank of Zimbabwe (RBZ) in February, but slightly higher than the 2,5% growth projected by the International Monetary Fund (IMF), and the World Bank’s 2,8% projection.

In its latest African Economic Outlook 2021 report titled From Debt Resolution to Growth: The Road Ahead for Africa, AfDB said the COVID-19 pandemic, high inflation and drought underpinned the 10% contraction in 2020.

Zimbabwe’s inflation rose to a post-dollarisation high of 839% in July last year, before receding to 341% by December 2020.

The RBZ has projected the rate to plummet to about 10% by the end of this year.

“Before the COVID-19 pandemic, Zimbabwe’s economy was already in recession, contracting by 6% in 2019. Output fell because of economic instability and the removal of subsidies on maize meal, fuel, and electricity prices,” AfDB said.

“The onset of the COVID-19 pandemic and continued drought led to 10% contraction in real GDP [gross domestic product] in 2020. Inflation soared, averaging 622,8% in 2020, up from 226,9% in 2019. Foreign exchange reforms were instituted in June 2020, which dampened an inflation that raged at an annual rate of 838% in July. Fiscal and current account deficits also recovered after July, but both deteriorated for the year as a whole,” AfDB said.

According to the regional bank, Zimbabwe’s budget deficit rose from 2,7% in 2019 to 2,9% in 2020 while the current account moved from a surplus of 1,1% of GDP in 2019 to a deficit of 1,9% in 2020.

“The exchange rate depreciated from $2,5 in February 2019 and stabilising around $82 to the US dollar in December 2020. Poverty stood at 70,5% in 2019 while unemployment remained high at over 21%.The banking system is stable. Banks have some room to increase credit. The loan-to-deposit ratio was 38,8% in 2020 against a benchmark of 70%. Non-performing loans are at 3,23%, well under the regulatory benchmark of 5%. The capital adequacy ratio is more than three times the regulatory requirement of 12%,” the bank said.

“Modest economic recovery is projected in 2021 if effective measures are taken to stabilise foreign exchange and avoid excessive money creation. But the outlook is clouded by a number of factors. The pandemic and government policies to contain the disease will affect production levels across all sectors — although a partial easing of border closures may

AfDB said the industrial and mining sectors would also be affected by several drawbacks.

“The problems are exacerbated by debt distress and arrears, and low international reserves that can cover less than one month of imports. Zimbabwe’s economic situation will remain challenged in 2021 although the foreign exchange reforms, especially the weekly forex auctions introduced in June 2020 could create price stability and create room for modest economic recovery,” it said.

The bank noted that Zimbabwe’s total public debt was US$11,1 billion, which translates to 53,9% of GDP.

It said 95,6% of this debt was external, including $6,4 billion in arrears to international financial institutions, bilateral, and private creditors.

Zimbabwe has been in default to global lenders since 2000.

A staff-monitored programme with the IMF to help Zimbabwe implement economic policies from May 2019 to March 2020 collapsed in September 2019, although government has said the IMF is heading back to Zimbabwe in a few months’ time.

“The government and the IMF have not agreed to a new arrangement, which would be aimed at helping Zimbabwe clear its arrears. As a result, the country will have to continue to rely largely on domestic resource mobilisation and borrowing from non-Paris Club members like China. The international financial institutions will not resume lending until debt arrears are cleared,” AfDB said. – News Day