To tame inflation, the Central Bank tightened monetary policy, raised the interest rates, further liberalized the forex market, and issued gold coins as a store of value.
These measures have narrowed the parallel market premium from over 100 percent in April 2022 to below 35 percent in September 2022. It is important that exchange rate distortions are discontinued.
In addition, fiscal policy will need to remain cautious, with no pre-election spending increases to contain prices from spiraling.
Accomplishing Zimbabwe’s vision of upper middle-income country (UMIC) status by 2030 will necessitate a sharp acceleration in growth rates. Simulations show that achieving UMIC status by 2030 will require elevating real growth rates to around 15 percent over the period 2023–30, underpinned by substantive growth of productivity, investment, and exports.
Accelerated growth could create around 1– 1.5 million additional jobs and reduce poverty substantially. In the baseline scenario, however, economic growth will linger at around 3 percent per year, while living standards and employment will only marginally improve and achieving UMIC status will be delayed significantly.
Cross-country experience shows that macroeconomic stability is a necessary condition for sustained growth and needs to be supported by strong institutions and structural transformation.
Substantial policy reforms were introduced by the 25 countries that have successfully transitioned from LMIC to UMIC status over the past three decades.
These included reforms to improve and maintain macroeconomic stability, strengthen institutions, and facilitate structural transformation.
Achieving UMIC status required a sustained policy commitment by successive governments over many years to achieve their goal. On average, it took these countries 15 years to achieve UMIC status, with median GDP growth maintained at 5.4 percent per year. Achieving macroeconomic stability in the medium term was a key characteristic of
transition countries’ economic reform programs, with most countries limiting inflation to below 10 percent per year, with none of the countries having multiple exchange rates.
Institutional reforms in countries transitioning from LMIC to UMIC status focused mainly on strengthening voice and accountability, the rule of law, regulatory quality (including of trade policies), and government effectiveness.
Supported by a stable macroeconomic environment and better institutions, investment
levels in these countries averaged 27 percent during the transition period.
Finally, the transition countries managed to reallocate employment from agriculture to industry and services, and from the informal to the formal sector, and boosted external trade by integrating into global value chains (GVCs).
An immediate priority for Zimbabwe is to achieve and sustain macroeconomic stability over the medium term that will underpin efforts to address key binding structural constraints to high growth.
Achieving and maintaining price and exchange rate stability—a necessary condition for high growth—will require the GoZ to implement a macroeconomic stabilization program that has broad public support and is consistently implemented.
Continued next page
(266 VIEWS)
