Zimbabwe’s economic competitiveness will remain significantly lower than its regional peers but with the new Government, there is significant upside potential for greater fiscal and monetary policy normalisation, according to global think tank Fitch Solutions, in its latest Country Risk Report on Zimbabwe.
Fitch said economic success for the country will, however, be tied to improved governance, increased investment openness and meaningful re-engagement with multilateral lenders and the international community in the years ahead.
These are areas President Mnangagwa’s government is currently focusing on amid a marked improvement in economic governance issues.
Re-engagement efforts have also been accelerated with western countries as well as multilateral lenders such as the IMF. The IMF has also sent missions on topics ranging from implementing monetary policy operations to improving the financial oversight and bank supervision.
The IMF has also been at hand assisting government with issues related to debt management, public financial management, revenue administration and government financial statistics.
However, in the short term, the country’s economic progress continues to be hampered by “years of economic isolation and unorthodox policy-making.”
The impact of sanctions imposed on the country by Western countries can also be blamed for the country’s economic demise according to Fitch Solutions, a unit of Fitch Ratings.
“Years of economic isolation, unorthodox policy-making and the impact of sanctions have been key factors that contributed to Zimbabwe’s multi-decade economic downturn and significant de-industrialisation under the regime of former president Robert Mugabe.”
Fitch said the two-decade economic damage under former president Mugabe, and continued natural and man-made factors, will remain challenging over the short-medium term.
This is despite the change in government.
“Consequently, despite the political reconfiguration since the last quarter of 2017, the operating environment in Zimbabwe will remain challenging over the short-medium term as it remains vulnerable to risk factors, such as adverse weather conditions and commodity price weakness, still-low industrial productivity and FX illiquidity,” Fitch said.
The Fitch Ratings unit added that these risks are compounded by internal factors such as high reliance on primary sector exports, high import reliance, endemic corruption and low confidence in property rights protection, high financing costs and a yawning infrastructure deficit.
Further, according to Fitch, these factors, combined with rigid labour market regulations, significantly lower the country’s competitiveness relative to its Southern African neighbours such as Namibia, Botswana and to a greater extent, South Africa.
The global think tank, however, expressed hope for the future as the new Government implement economic reforms.