Ekonomske analize
Zimbabwe

Zimbabwe

Population 14.1 million
GDP 1002 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 3.8 2.1 0.5 2.0
Inflation (yearly average) (%) -0.2 -2.4 -1.6 4.6
Budget balance (% GDP) -1.5 -1.1 -4.9 -3.1
Current account balance (% GDP) -23.2 -21.4 -19.8 -18.7
Public debt (% GDP) 55.3 58.9 58.9 57.6

 

(e) Estimate (f) Forecast

STRENGTHS

  • Abundant mineral resources (platinum, gold, diamonds, nickel)
  • Agricultural potential (maize, tobacco, cotton)
  • Tourism potential
  • Membership of the SADC (Southern African Development Community)
  • Normalisation of relations with the international community

WEAKNESSES

  • Economic and financial situation destabilised by long period of hyperinflation
  • Shortage of liquidity
  • Under-investment in infrastructure (energy in particular)
  • Unsustainable food and healthcare situations: The majority of the population is dependent on international aid
  • One of the highest rates of AIDS in Africa and the world

RISK ASSESSMENt

Economic growth undermined by liquidity crisis

The economy contracted in 2016, largely as a result of a fall in agricultural output (tobacco, cotton, sugar cane), under the impact of the unfavourable climatic conditions in 2015/2016. Hydroelectric power generation and water supplies were also disrupted by the drought triggered by theEl NiñoandLa Niñaphenomena during the last two years. As for the mining sector, it suffered from low prices for its exported commodities. In 2017, despite the more favourable climate forecasts, the economy, which is paralysed by a liquidity crisis, is expected to continue contracting. The roots of this crisis can be found in the decision by the government in April 2009 to abandon the Zimbabwean dollar in favour of the euro, the rand, the yuan and above all the US dollar. With the fall in commodities prices and the drought, export earnings collapsed, drastically reducing the inward flow of foreign currencies. In addition, deterred by the negative economic climate and the political context, investments have been and will be very limited. The shortage of liquidity means companies will, as they struggle to obtain foreign currencies, be limiting their activities and reducing their operations. At the end of November 2016, in an attempt to overcome this shortage, the central bank decided to issue bond notes indexed against the US dollar. However, perceived by its people as a reintroduction of the Zimbabwean dollar, this measure has created fears of the re-emergence of the hyperinflation experienced by the country in 2008 - 2009.

Struggling since then against deflationary pressures, inflation restarted in 2016 following the ongoing depreciation of the rand and higher food prices as a result of the droughts. Inflation is expected to continue this upwards movement in 2017.

 

Zimbabwe’s twin deficit in a critical situation

Government revenues are shrinking as GDP contracts. Thus, in 2016, the budget deficit increased because of the poor tobacco harvest, the country’s leading export and revenue source for the Zimbabwean government. The drought also led to higher spending which exceeded the government’s target and thus increased the scale of the deficit. With better climatic conditions in 2017, improved tax receipts and lower spending should make it possible to reduce the budget deficit. Zimbabwe does however need to implement a fiscal consolidation to reduce what accounts for the biggest proportion of its spending: the government wage bill and debt servicing. The situation is all the more critical as the government will very probably not be able to count on assistance from multilateral lenders whilst it has yet to repay 1.6 billion dollars of arrears owed to the WB and AfDB, although it has fulfilled all its financial obligations with regard to the IMF with the repayment of 107.9 million dollars of arrears.

The major drought in 2016 resulted in a drop in exports and exacerbated by the fall in commodities prices and a loss of competitiveness linked with the scale of the depreciation of the currency of its major competitor, South Africa, against the US dollar. Imports of food increased following food shortages. In 2017, the current account deficit is expected to remain at a critical level and the flows of grants and FDI will remain well below what is needed to cover the financing needs. The ever increasing pressure on the balance of payments is exacerbating the shortage of dollars and liquidity.

 

R. Mugabe weakened by economic, political and social tensions

Robert Mugabe, 92, may not be able to last until the end of his term in 2018. The struggle around his succession is becoming fierce with rising factionalism within his party (ZANU-PF) and a proliferation of opponents, including the former Vice-President, Joice Mujuru, who has launched her own “People First” party. In the current economic climate, Robert Mugabe finds himself in a tenuous position: Popular discontent is growing in a developing food crisis, with growing unemployment and poverty, as well as an absence of political change.

Mugabe can however count on the support of the countries in the region, namely the fifteen members of the SADC. The support of the international community however remains less certain. The only way to see a return of the loans and grants from international donors on which the country is heavily dependent in overcoming poverty and for investments in its infrastructures, is through a restructuring of the country’s debts and a change in its economic policies. The repayment in 2016 of its most recent financial obligations towards the IMF will not be enough to ensure further financial aid for Zimbabwe. The political instability and the worst business climate in the region (183rd place out of 190 countries according to the World Bank’sDoing Business 2017 survey) are not going to attract investors and no improvements are likely in the short term. The country has thus had to turn to China to finance its investments. The Asian giant thus has an increasing influence within the country, in particular with the adoption in 2015 of the yuan as an exchange currency.

 

Last update: January 2017

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