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Zimbabwe set for US$1,1 billion current account surplus

by Staff reporter
01 Oct 2021 at 07:52hrs | Views
ZIMBABWE's current account is projected to register a stronger surplus position of about US$1, 091 billion this year, higher than the initial projection of US$611,5 million, the Reserve Bank of Zimbabwe (RBZ).

In a September 21, 2021 economic update,  monetary authorities, however, said project year end inflation could be slightly higher, between 35 percent and 53 percent, compared to the initial projection of between 25 percent and 35 percent.

The southern Africa country managed a current account surplus of US$920 million in 2019 while it is estimated to have recorded a surplus of $1,096 billion last year, a feat that may be repeated this year.

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. The RBZ 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.

Merchandise exports increased by 22,8 percent from US$2,285 billion during the first half of 2020 to US$2,590 billion during the first half of 2021; on account of good performance by primary exports including mineral exports.

The central bank said strong external sector performance has also led to a significant increase in foreign currency nostro balances which now stands at US$1,7 billion.

Assuming an amount of at least US$500 million cash outside the banking sector, this translates to foreign currency holdings of above US$2 billion against equivalent of around US$300 million reserve money readily available for transactions.

RBZ Governor Dr John Mangudya said under normal circumstances, a current account surplus should signal a stronger or stable national effective exchange rate, but this has not been the case for Zimbabwe.

"These developments imply that the country is currently generating sufficient foreign currency to sustain the economy.

" Under normal circumstances, a strong external sector position signals a stronger nominal effective exchange rate," he said.

The external sector position is expected to remain favourable, supported by strong recovery in the global economy which is expected to register strong growth of 6 percent in 2021, from an estimated negative growth rate of 3,3 percent in 2020.

In addition, Dr Mangudya said, international commodity prices are also rising, driven by strong recovery in the global economy. Moreover, tobacco prices have also

Gross Domestic Product growth is projected to remain unchanged at 7,8 percent in 2021.

The strong growth of the economy is anchored on a better 2020/21 rainfall season, higher international mineral commodity prices, stable macroeconomic environment and subdued Covid-19 pandemic.

This growth is being driven higher growth in the sectors of agriculture, electricity generation, accommodation and food services as well as financial services.

Worrisomely, the central bank governor noted, developments on the parallel market for foreign exchange are likely to exert further inflationary pressures in the economy.

"The country recently witnessed further depreciation of the parallel market exchange rate from about $130 per US dollar to about $160 per US dollar implying a parallel market premium of above 70 percent," he said.

In view of recent developments, annual inflation is likely to end the year between 35 percent to 53 percent, up from the revised end targets of between 25 percent and 35 percent.

In addition, the increase in international food and oil prices as well as global inflation continue to exert additional inflation pressures in the domestic economy, the central bank said.

Source - the herald