Zimbabwe’s current account surplus to narrow 1,4 percent

HARARE – Zimbabwe’s current account surplus is expected to narrow to 1,4 percent of Gross Domestic Product (GDP) in 2022 from 2,4 percent in 2021 as demand for consumer and industrial imports strengthens amid an uptick in economic activities. 

Fitch Solutions, a leading economic research firm, which is part of reputable global credit rating agency Fitch Ratings, said while the secondary income surplus will remain substantial given ongoing aid inflows, this will be outweighed by widening deficits in the services and primary income accounts as the tourism sector stages only a weak recovery, and profit remittances by mining companies rise. 

“We expect the current account to return to deficit in the medium term, leading to potential financing challenges given low levels of foreign direct investment inflows and foreign reserves,” Fitch said in its summary report on Zimbabwe. 

The research firm said demand for consumer and capital imports will remain solid as inflation slows further, thus supporting spending power, and construction activity rises as the government invests in infrastructure. 

Current account surpluses refer to positive current account balances, meaning that a country had more exports than imports of goods and services. It may also imply a country able to meet all its external obligations. 

Generally, a current account surplus implies a higher inflow of forex than outflow. It helps with an increase in reserves which is critical for maintaining financial and external sector stability, a case which is directly opposite with developments in Zimbabwe.

The Reserve Bank of Zimbabwe (RBZ) recently said the surplus on the current account continues to be driven by diaspora remittances and other transfers as reflected by the increase in the secondary income balance of close to 50 percent during the first half of 2021 over the same period in 2020. 

According to the 2022 National Budget, the current account balance is projected to remain in surplus in 2022 driven by secondary income, though at a much narrower level of US$723,2 million, compared to US$1078,0 million that was projected for 2021. 

Merchandise exports increased by 19,2 percent to US$4 053.4 million recorded in the first nine months of 2021, from US$3 400.3 million in 2020, spurred by increases in agriculture and mineral exports, while manufactured exports remained subdued. 

In 2022 merchandise exports are projected to grow by 0,4 percent to US$4,73 billion, mainly driven by mineral exports.

The central bank has also said strong external sector performance has also led to a significant increase in foreign currency nostro balances which are now over US$2 billion. 

According to the RBZ governor John Mangudya, under normal circumstances, a current account surplus should signal a stronger or stable national effective exchange rate. – Herald

%d bloggers like this: