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'Zimbabwe's economy most vulnerable in the region'

by Staff reporter
16 Feb 2020 at 08:43hrs | Views
ZIMBABWE'S economy is vulnerable, with its growth trends now 2% below the average of sub-Saharan Africa's economic expansion, partly due to exchange rate misalignment, volatile weather patterns, and unsustainable fiscal deficit, a new report has revealed.

According to the 2019 Needs Assessment Report for Zimbabwe compiled by the African Development Bank, United Nations and World Bank, the country is faced with a precarious macro-fiscal environment.

"Formerly one of the most advanced economies in Sub-Saharan Africa, the Zimbabwean economy today is among the most vulnerable, with erosion of its industrial and agricultural base," the report reads in part.

"The economic growth trend is now some two percent below the average of Sub-Saharan Africa, partly resulting from exchange rate misalignment, volatile weather patterns, and unsustainable fiscal deficit."

The United Nations recently predicted that Zimbabwe's economy will go down by 5,5% in 2019 and expects that it will fall by a further 2,5% in 2020.

On the other hand, the World Bank says the economy fell by 7,5% in 2019, but may rebound by 2,7% in 2020.

The government projected a 6,5% decline in 2019 and a 3% growth in 2020, but due to the looming drought, the figures might be hard to achieve.

Zimbabwe had double-digit growth rates shortly after dollarisation in 2009, but confidence started to evaporate in 2012, coinciding with the commodity supercycle ending, which particularly hit the mining sector and the investment-to-GDP ratio declined sharply.

The report noted that bank lending recovered dramatically after dollarisation, but poor investment choices led to a sharp increase in non-performing loans that reached over 20% of the loan portfolio in September 2014.

It said the decline in Zimbabwe's growth coincided with a gradual depreciation of the South African rand against the United States dollar, which had an immediate impact on Zimbabwe's competitiveness.

Zimbabwe used the US dollar between 2009 and 2019 at a time when South Africa was its largest trading partner.

The government last year announced the return of the Zimbabwe dollar as the sole legal tender, albeit with inadequate foreign currency and mineral backing causing the currency to lose value within a short period of its introduction.

Meanwhile, the report noted that the liquidity shortages and the existence of separate currencies severely affected the economy.

It said bond notes introduced in November 2016 did not help increase cash supply and liquidity, and shortages of foreign currency intensified further following the separation of real-time gross settlement (RTGS) local currency accounts from nostro foreign currency accounts in October 2018.

The Zimbabwe dollar has plunged more than 85% since it was reintroduced as legal tender last year.

The country is reeling under economic hardships characterised by hyperinflation, low salaries, excessive power cuts, dire shortage of maize meal and low production, pushing citizens and businesses to the edge.

The report — produced after intensive consultations with various government agencies, the private sector, civil society and development partners — was prepared following a request from the government.

The exercise was carried out between March 2018 and August 2019.

The new government has been seeking to re-engage fully with the international community, attract foreign direct investment and restore confidence in politics, governance and the economy of the country.

Source - the standard
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