Zimbabwe’s economy will grow by 4.2% in 2019 and 4.4% in 2020, the African Development Bank forecasts, but the country must liberalise the exchange rate and tame deficits if it is to see “meaningful” recovery.
The economy performed better than expected in 2018, expanding by an estimated 3.5%, driven by agriculture, supported by relatively peaceful elections, AfDB says in its African Economic Outlook for 2019, released yesterday.
AfDB says Finance Minister Mthuli Ncube has “adopted and is implementing prudent fiscal policy underpinned by adherence to fiscal rules”. But it said Zimbabwe has a lot to do if it is to realise significant growth.
“Cash shortages and the three-tier pricing system coupled with foreign exchange shortages continued to constrain the goods and factor markets,” the report says.
The fiscal deficit was an estimated 10.7% of GDP in 2018, compared with 12.5% of GDP in 2017, financed mainly through domestic borrowing.
The fiscal deficit was driven mainly by election-related spending, civil servant salary increases, and farm subsidies.
The current account deficit was an estimated 3.7% of GDP in 2018, with merchandise imports continuing to exceed exports, putting pressure on foreign exchange supplies and making it critical to diversify exports.
“The country’s protracted fiscal imbalances have constrained development expenditure and social service provision, undermining poverty reduction efforts. Unemployment pressures have been mounting as employment opportunities continue to dwindle.”
AfDB lists areas that Zimbabwe needs to address for businesses to thrive.
“Policy-related macroeconomic instability; lack of funding, land tenure, and investment regulations; high input costs and outdated machinery; inefficient government bureaucracy; and inadequate infrastructure (particularly energy) remain key challenges for private sector development,” AfDB says.
Shortages of essential goods, such as fuel and consumer goods, remain the major threats to any meaningful economic recovery.
On reforms, AfDB recommends: “Zimbabwe has opportunities requiring minimal additional investment to realize medium-term growth targets. In particular, measures are needed to increase transparency in the mining sector, strengthen property rights, reduce expropriation concerns, control corruption, and liberalize the foreign exchange markets.”
AfDB also says engagement with political actors “in a positive social contract will accelerate political reform”.- NewZwire