The economy rebounded in 2021 driven by recovery of agriculture and industry and relative stabilization of prices and exchange rates. GDP is estimated to have grown by 5.8% in 2021 after contracting by 6.2% in 2020. An exceptionally good agriculture season, coupled with slowing inflation and higher remittances boosted domestic demand. Relaxed pandemic restrictions, good vaccination levels, and favorable terms of trade supported stronger industrial production and exports, with exports of minerals expanding by over 51% in a year. A widening of the current account surplus in 2021 and the SDR allocation helped increase international reserves.
Disinflation policies were effective in bringing down inflation in 2021. Inflation slowed from 838% in July 2020 to 60.7% in December 2021. Monetary policy was further tightened by year end and in early 2022 to calm inflationary pressures from continuing distortions in the foreign exchange market and rising international prices.
Fiscal policy remained relatively tight, with most of the additional spending financed by SDRs. The fiscal balance turned into a cash deficit of 1.5% of GDP. Procurement of vaccines and higher spending on agriculture and public infrastructure contributed most to the fiscal deficit. Revenue collection improved, driven by improved performance of corporate income tax, VAT, and money transfer tax. Public indebtedness worsened further as the government assumed RBZ’s legacy debt, adding over US$2.5 billion to external arrears and external debt reached US$14.5 billion.
Developmental challenges
Extreme poverty rate increased steadily between 2011 and 2020, only declining in 2021. International poverty rate was 22% in 2011 and estimated to be 41% in 2021 and 40% in 2022. Although poverty remains an overwhelmingly rural phenomenon, it has increased relatively faster in urban areas leading to the urbanization of poverty. Zimbabwe’s international poverty rate (PPP $1.90/person/day) was half the level in sub-Saharan African in 2011 but by 2019, it was on par with the rest of the continent (42%). Inequality has also increased over the last decade, with the Gini coefficient increasing from 42 in 2011 to 50.3 in 2019 – among the highest in the world.
Human Capital
Poverty levels decreased, reflecting the bumper maize harvest of the 2021 season. There was a marked improvement in food security, with the share of population in severe or moderate food insecurity falling from 61% to 38% between March and November 2021. The lack of improvement in the extreme poverty rate in urban areas suggests that despite the reopening of the economy and loosening of mobility restrictions, intermittent closures continue to affect employment, incomes, and livelihoods of urban residents. Social assistance programs play a limited role due to their low coverage and limited poverty focus on targeting.
The economy is projected to continue to recover in the medium term, amid downside risks. GDP is projected to grow by 3.7% in 2022 but slowdown in the medium term as the positive base effects diminish. The downward revision is based on worsening agriculture conditions (output set to contract by 1.5% in 2022 from double digit-growth in 2021 based on falling rain levels and rising prices of key inputs) and global price increases amidst supply side disruptions. Mining production and exports are expected to benefit from continuing high international prices while tourism, trade, and transport are likely to start recovering with positive spillover effects on other sectors. The risks to the outlook are significant with heightened global risks as global growth slows down and uncertainty about the pandemic remains. Domestic risks also weigh on growth performance and are linked to climatic shocks, expansionary fiscal and monetary policy thereby delaying economic recovery.
Poverty levels are expected to further decline in 2022, albeit marginally as conditions for a good harvest deteriorate, prices remain high, and the capacity of the social system to target and reach the poor with adequate social safety nets is constrained. If inflation is not adequately managed, the purchasing power of incomes will be eroded, putting more people in or at risk of poverty and delaying improvements in basic service delivery.
To further efforts to solidify macroeconomic stability, Zimbabwe’s recovery should be underpinned by policies promoting productivity growth. These would include reducing state intervention in the economy, lessening the regulatory burden, strengthening governance and anti-corruption efforts, lowering barriers to regional trade integration, and removing forex retention requirements. Service delivery needs to be strengthened and household vulnerability reduced through robust social safety net programs.
Last Updated: Apr 13, 2022
