Zimbabwe’s strong recovery from the hyperinflation and economic contraction during 2000-2008 period has encouraged hopes for its return to the strong socio-economic performance, and middle-income prospects, of the 1990s. However, growth has slowed sharply since 2012 as the economy’s vulnerability to climate and terms of trade shocks resurfaced. In 2013, Zimbabwe adopted a new Constitution and prepared a new development plan, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET). With a relatively well-educated workforce, abundant natural resources and developed infrastructure (albeit aging), the 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 battered the Zimbabwean economy contributed to the sharpest drop in gross domestic product (GDP) of any peacetime economy (nearly halving), and poverty rates rising to over 72%, with over a fifth of the population in extreme poverty. Health, education and other basic services, once regional models, largely collapsed, and Zimbabwe’s Human Development Index (HDI) ranking fell to 173 out of 187 countries. A lengthy isolation from the international community restricted aid flows and saw a build-up of arrears to multilateral and bilateral partners.
In 2009, the country embarked on a period of stabilization and growth ushered in by a political settlement and the adoption of a multi-currency regime, in effect dollarizing the economy. During 2009-12, the economy rebounded, with growth rates averaging around 8.7%. Inflation stabilized; revenues and bank deposits recovered sharply. The country also embarked on its first Staff Monitored Program with the International Monetary Fund (IMF) and began making token payments on arrears to multilateral institutions.
With help from resurgent public and donor spending, social services have been recovering. Many social institutions are rebounding toward their earlier levels of sophistication. Zimbabwe’s HDI ranking recovered to 156 in 2014, 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 also a reduction in HIV prevalence to around 15%, down from over 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, before the full extent of the AIDS pandemic). 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. Nevertheless, Zimbabwe missed a significant number of the Millennium Development Goals.
However, since 2012 the rebound has slowed, held back by deteriorating terms of trade (especially the drop in the South African rand, in Zimbabwe’s main trading partner), adverse weather, and continued political uncertainty. Growth fell to 4.5% in 2013, 3.2% in 2014, and projections of 1.5% or less in 2015. The balance of payments deficit remains over 20% of GDP, hampered by softening minerals prices and the impact of uneven rains on agricultural output. Deflation has set in, -2.8% for June 2015. The banking sector remains fragile, with low liquidity and continuing concerns over non-performing loans.
Having dollarized, Zimbabwe must see real adjustments in productivity, which take reformsand financing, in order to regain its competitiveness in the global marketplace. But the large international arrears constrain financial flows into Zimbabwe for both the public and private sector.
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 a further renewal of institutional and operational capacity in the public sector, further improvements in basic services, delivery as well as deep reforms in economic policies and investment climate.
Last Updated: Sep 15, 2015