Zimbabwe economy seen contracting up to 6% in 2019 -treasury document

Finance and Economic Development Minister Mthuli Ncube

HARARE (Reuters) – Zimbabwe’s economy is projected to contract by up to 6% this year due to a drought that hit farming output and electricity generation but is expected to rebound in 2020 on better agriculture prospects, a treasury document showed on Monday.

Hopes that Zimbabwe’s economy would quickly rebound under President Emmerson Mnangagwa, who took over after the late Robert Mugabe was deposed in a coup in November 2017, have faded fast as citizens grapple with soaring inflation which has eroded earnings and savings.

The national treasury said in a pre-budget planning document that Zimbabwe’s economic problems were being compounded by shortages of foreign currency, fuel and electricity.

“The economy is, therefore, projected to underperform by as much as -3% to -6% in 2019,” the document said, adding that the economy was expected to grow 4.6% next year.

Zimbabwe’s economy is grappling with its worst crisis in a decade, with triple-digit inflation, rolling power cuts and shortages of U.S. dollars, medicines and fuel which have revived memories of the 2008 hyperinflation under Mugabe.

The treasury said the month-on-month inflation rate was projected to fall to around 10% by December this year before easing to 2.3% at the end of 2020.

The government had kept spending in check, the treasury said, and is expecting a budget deficit of up to 4% of GDP this year.

The country is experiencing its worst economic crisis in a decade, with millions needing food assistance and resurgent inflation reaching 300% in August, according to the International Monetary Fund.

After optimistically forecasting 3.1% growth in his maiden budget speech last November, Finance Minister Mthuli revised his outlook and projected a 2.1% contraction during a mid-term review on August 1.

A 2020 budget strategy paper published by Treasury shows key sectors of the economy – mining, agriculture, electricity and water – shrinking by double digits.

“In 2019, severe exogenous shocks related to climate change caused drought and cyclone which compromised agriculture activities and electricity generation with extended effects on other sectors, – all forcing the economy into recession,” Treasury said.

“The economy is, therefore, projected to underperform by as much as -3% to -6% in 2019. The situation is being worsened by shortages of foreign currency, electricity and fuel, all constraining industry operations.”

Treasury, however, expects the economy to quickly rebound, with 4.6% growth projected in 2020 on the back of an anticipated improvement in the farming season.

It wasn’t all bad news, though, with exports in the first seven months of the year up 7% to US$2.1 billion, against US$1.96 billion during the same period of 2018.

Imports, on the other hand, were 21% lower between January and July 2019, reflecting an acute foreign currency crisis.

While the trade deficit narrowed significantly to US$679 million in the first seven months of 2019, from US$1.58 billion in the corresponding period last year, this came at the expense of massive shortages of key goods and services.

Electricity imports saw the biggest decline, by 73%, from US$108 million between January and July 2018, to US$29 million this year. Curtailed power imports and depressed local generation have forced industries and households to go without electricity for an average 18 hours daily.

Other key imports that recorded double-digit declines are crude soya bean oil (down 37%), wheat (down 38%) and ammonium nitrate (down 43%).

Looking forward, the government plans to spend ZWL$28.5 billion in 2020. With revenue seen at ZWL$24.8 billion, a budget deficit of ZWL$3.7 billion (1.8% of GDP) is projected.

The government wage bill is expected to double from ZWL$5.56 billion this year to ZWL$11 billion (44% of revenue) in 2019.

Reuters plus agencies