Nonetheless, Zimbabwe has strong foundations for accelerating future economic growth and improving living standards. The economy has excellent human capital: a youthful, well-educated labor force with a strong entrepreneurial culture. In fact, the level of skills among Zimbabwe’s current workforce is on a par with UMICs in Sub-Sahara Africa (SSA), although skill shortages are emerging in some sectors.
Moreover, Zimbabwe possesses abundant mineral and natural resources that, if well-managed, can support the country’s broader development goals over the long term.
Harnessing these strengths will require Zimbabwe to focus on policies that address the key constraints to economic growth.
Zimbabwe’s economic performance over the past two decades sheds light on what
has worked well. Fiscal discipline, non-inflationary monetary policy, and effective exchange rate management remain necessary for economic stability.
Similarly, recent reforms to improve public finances should support improved economic management going forward. Fiscal deficits have shrunk to under 2 percent per year by reducing the public wage bill, preventing excessive government support to the
agriculture sector, and strengthening revenue collection.
Public financial management (PFM) reforms have also been undertaken, including program-based budgeting (PBB), PFM systems, budget and debt transparency.
Finally, the Government of Zimbabwe (GoZ) has also taken steps toward devolution, and
improved the business environment (e.g., by repealing the Indigenization and Empowerment Act), signing the global land compensation deal, simplifying business start-up and property registration, strengthening access to credit, and making resolving insolvency easier.
At the same time, those policies that have been detrimental to economic growth need to be
discontinued. Economic development has been hampered by macroeconomic instability (particularly price instability), low investment, and limited structural transformation.
Expansionary fiscal and monetary policies, coupled with multiple exchange rates, have resulted in considerable price volatility. The management of public finances was complicated by a high public wage bill, many unprofitable state-owned enterprises (SOEs), and guarantees to the agriculture sector.
Similarly, monetary policy included frequent monetary financing of the budget and quasi-fiscal activities (QFAs). Meanwhile, a significant public debt burden financed by domestic issuance, coupled with a high-cost regulatory environment, has
limited private investment and economic activity.
Finally, the economy’s dependence on key products and subsectors, and strong government support for lower value-added agriculture over higher value-added services and manufacturing, has reduced the potential for higher rates of economic growth.
External/climatic shocks have contributed to low growth, hence investing in resilience/adaptation measures is critical to mitigate associated risks. Recent price volatility risks derailing the post-COVID-19 recovery.
While inflation decreased from a high of 557.2 percent in 2020 to 98.5 percent in 2021, it has accelerated sharply since the beginning of 2022, reaching almost 285 percent year-on-year in August 2022. The acceleration of prices reflects monetary expansion, limited fiscal and monetary coordination, and a surge in global prices due to the war in Ukraine.
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