Afreximbank pegs Zimbabwe growth at 3,8%

The African Export–Import Bank (Afreximbank) has downgraded Zimbabwe's economic growth forecast for 2025 to 3.8%, considerably lower than the optimistic 6% growth target set by the government and Bretton Woods institutions. The bank attributed the downward revision to ongoing macroeconomic challenges and external pressures facing the country.

Zimbabwe's economy, which expanded by about 2% last year, had been expected to accelerate to 6% growth driven by a recovery in agriculture and improved commodity prices - particularly gold, the nation's largest foreign currency earner. However, Afreximbank's recent economic brief paints a more cautious picture.

"Despite facing macroeconomic challenges stemming from global and regional economic headwinds - including currency volatility, inflationary pressures, and debt sustainability concerns - Zimbabwe has demonstrated remarkable resilience, emerging as one of the fastest-growing economies in southern Africa," the bank said.

Afreximbank highlighted that real GDP growth moderated from 6.5% in 2022 to 5.3% in 2023, and is projected to slow further to 2.2% in 2024. The bank linked this slowdown primarily to adverse climatic conditions such as the El Niño-induced drought, flooding, and power shortages that have severely disrupted agricultural output.

Growth in recent years has been supported by expansions in agriculture, mining, and services sectors, buoyed by remittance inflows. However, public debt, which stood at roughly 95% of GDP in 2024, continues to strain government finances and limits fiscal space for development spending.

Looking ahead, Afreximbank projects economic growth to pick up modestly to 3.8% in 2025 and 3.2% in 2026, supported by improved weather conditions boosting agricultural productivity, a rebound in tourism receipts, and sustained remittance inflows from recovering global markets.

Despite these positive factors, the bank warned that vulnerabilities remain. Zimbabwe faces persistent inflationary pressures driven by sharp currency depreciation, fluctuations in external commodity prices, and structural supply-side constraints.

The brief noted that inflation soared from 193.4% in 2022 to a staggering 667.4% in 2023, largely due to rapid depreciation of the domestic currency against the US dollar. Inflation is expected to moderate to around 210% in 2024 and further to 199.6% in 2025, signaling gradual stabilisation.

This improvement follows the introduction of the gold-backed Zimbabwe Gold currency (ZiG) by the Reserve Bank of Zimbabwe in April 2024, intended to restore confidence and stabilise exchange rates. However, the ZiG depreciated by 43% within six months due to surging food imports, declining mineral export earnings, and ongoing structural economic weaknesses that depleted foreign reserves.

Looking ahead, Afreximbank anticipates the ZiG will marginally weaken against the US dollar, averaging between ZiG34 and ZiG39 per dollar in 2025 and 2026 respectively, as inflationary pressures and foreign exchange vulnerabilities persist.

On the fiscal front, the bank expects the deficit to narrow slightly to 5.4% of GDP in 2025 and 5.1% in 2026, down from 6% in 2023. However, it cautioned that fiscal risks remain elevated due to external shocks, rising debt servicing costs, and potential policy slippages.

"Strengthening domestic revenue mobilisation and improving expenditure efficiency are critical to achieving a more sustainable fiscal trajectory," Afreximbank urged.

Several economists have expressed skepticism over the government's 6% growth target, citing hawkish monetary and fiscal policies that have contributed to liquidity constraints likely to slow economic expansion.

As Zimbabwe navigates these complex economic headwinds, Afreximbank's revised forecast underscores the challenges ahead despite promising signs of resilience in key sectors.