Zimbabwe’s economy is at a crossroads. The country faces challenges relating to fiscal consolidation and financial sector stabilization; stimulating growth and investment to increase revenue collection and foreign exchange generation; protecting social gains
However, the recently-announced Transitional Stabilization Programme 2018-2020 contains the government’s plans to ensure financial stabilization, stem current liquidity challenges that have seen parallel market exchange rates skyrocket and contribute to inflationary pressures, as well as attract foreign direct investment and improve the balance of trade to boost economic growth. Buoyed by a “new dispensation” that began in November 2017, the country has been championing a “Zimbabwe is open for business” campaign as the start of its transition from a publicly-led economy to a private sector-led economy to chart the way to “Vision 2030” (an
In 2015, after a period of recovery (2010 to 2014), Zimbabwe’s economy began a downward trend, that saw a decline in gross domestic product (GDP) growth due to a drought and fall in commodity prices; an expansionary fiscal policy that led to a burgeoning fiscal deficit; rising vulnerability and poverty because of weather and financial shocks; and acute foreign currency shortages dampening demand and supply.
Consequently, Zimbabwe’s unsustainable fiscal deficit widened from 8.5% in 2016 to 15.2% in 2017 and is projected to surpass that level in 2018. The government is financing the fiscal deficit largely through domestic borrowing from both commercial banks and Central Bank using an overdraft facility. The overdraft created electronic deposits or Real Gross Time Settlement (RTGS) in the banking system allowing the government to make payments without concomitant increases in US dollar cash balances. This resulted in a mismatch between $US cash balances and RTGS balances. Cash US$ versus RTGS dollar exchange rate weakened (from US$1:1.4 RTGS in January 2018 to over 1:2 at end September 2018), while inflation increased averaging 3.1 percent during the first 7 months of 2018 compared to 0.2 percent during the same period last year.
The current account deficit narrowed for three successive years to 2017 partly due to import restrictions and recovery in exports, and these positive signs of recovery extended into 2018 through growth in tobacco, cotton, gold and tourism outputs. However, the trend is expected to be reversed in 2018 as
The year 2018 is marked by subdued economic growth –projected at 3%, down from 3.2% in 2017. However, the outlook (economic growth and fiscal situation) for the second half of 2018 and beyond hinges on how fully the government will implement fiscal consolidation measures and how fast Zimbabwe will re-engage with the international community as the country continues to seek a sustainable solution to its arrears clearance.
Recent forecasts regarding a likely El Nino event in 2018/19, could lead to a drought. According to the Zimbabwe Vulnerability Assessment Committee, the number of food insecure people is expected to increase between July 2018 and March 2019 among 28% of the rural population. In addition, Zimbabwe is currently grappling with a cholera outbreak which has led to more than 6,000 reported cases and 50 deaths. While urgent measures to improve infrastructure have started, given the scale of the infrastructure deficit, they are inadequate and significant investments will be required to eliminate the threat of disease in
Last Updated: Oct 31, 2018