Zimbabwe’s recovery from decades of contraction has faltered, and the economy faces serious challenges due to external and policy shocks. Growth has slowed sharply from the average 8% during 2009-12, caused by significant shifts in trade (commodity price declines and appreciation of the US dollar) and a series of major droughts. The economy is projected to grow by 0.4% in 2016 owing to the impact of El Nino, devaluation of neighboring currencies and severe cash shortages following an ill-timed fiscal expansion. Extreme poverty which was estimated to have fallen during 2009-14, is projected to have risen substantially in the past few years.
However, fundamentals for growth and poverty reduction are strong, provided the country can tackle its political fragilities and build a consensus around inclusive and competitive investment policies.
The political and economic crises that characterized the economy between 2000 and 2008 nearly halved its gross domestic product (GDP), the sharpest contraction of its kind in a peacetime economy raising poverty rates to more than 72%, with a fifth of the population in extreme poverty. Health, education and other basic services, once regional models, largely collapsed and Human Development Index (HDI) in 2011 stood at 173 out of 187 countries. A lengthy isolation from the international community had restricted aid flows resulting in build-up of arrears to multilateral and bilateral partners.
In 2009, the country adopted a multicurrency regime (dollarization) that ushered in macroeconomic stability and positive economic growth. During 2009-12, the economy rebounded, with growth rates averaging around 8.7% per year. Inflation stabilized; revenues and bank deposits recovered sharply. The country also began making token payments on arrears and embarked on a series of Staff Monitored Programs with the International Monetary Fund (IMF).
Social services recovered amid resurgent public and donor spending. Zimbabwe’s HDI ranking recovered to 155 in 2015, and a Multi-Indicator Cluster Survey in 2014 revealed that in several key areas, Zimbabwe has regained outcome levels of the early 1990s. Underpinning this is a reduction in HIV prevalence to around 15% since 2014 down from more than 40% in 1998. Life expectancy recovered from a low of 43.1 in 2003 to 53.3 in 2012 (compared with a high of 61.6 years in 1986). The maternal mortality rate declined from 960 deaths per 100,000 live births in 2010-2011 to an estimated 614 deaths in 2014; under-five mortality fell from 94 per 1,000 in 2009 to 75 in 2014. Despite this, Zimbabwe missed a significant number of the Millennium Development Goals.
In 2015, Zimbabwe proposed a plan to clear arrears and resume much needed financing from, International Financial Institutions during 2016. However, delays in implementing this plan and undertaking corrective fiscal reforms have contributed to the declining market confidence and sharp economic slowdown. More recently, growing dissatisfaction with economic and social challenges have seen a rise in public protests and a resurgence in political fragilities.
Zimbabwe still has enormous potential for sustained growth and poverty reduction given its generous endowment of natural resources, existing stock of public infrastructure and comparatively skilled human resources. Realizing this potential will require prompt action to correct fiscal policies, re-stabilize the monetary system, and resolve arrears to international lenders which would allow for a resumption of development financing. It will also require the continued renewal of institutional and operational capacity in the public sector as well as deep reforms in the investment climate.
Last Updated: Oct 04, 2016