By Staff Reporter
HARARE – The African Development Bank (AfDB) has projected Zimbabwe’s economy to grow 4.2% this year and 3% in 2022 if effective measures are taken to stabilize foreign exchange and avoid excessive money creation.
AfDB’s projected growth is much lower than the 7.4% projected by the Zimbabwean government in the 2021 National Budget. However, it is higher than the 2.9% growth anticipated by the World Bank in 2021.
Southern Africa is the region that was hardest hit by the pandemic, the Bank said, with an economic contraction of 7% in 2020. It is projected to grow by 3.2% in 2021 and 2.4% in 2022.
In its latest African Economic Outlook report, AfDB said before the coronavirus pandemic, Zimbabwe’s economy was already in recession, contracting by 6% in 2019.
“Output fell because of economic instability and the removal of subsidies on maize meal, fuel, and electricity prices; suppressed foreign exchange earnings; and excessive money creation,” it said.
“The onset of the Covid-19 pandemic and continued drought led to 10% contraction in real GDP in 2020.”
Inflation soared, averaging 622.8% in 2020, up from 226.9% in 2019. Foreign exchange reforms were instituted in June 2020, which dampened an inflation that raged an annual rate of 838% in July.
Fiscal and current account deficits also recovered after July, but both deteriorated for the year as a whole, according to AfDB.
The budget deficit rose from 2.7% in 2019 to 2.9% in 2020, while the current account went from a surplus of 1.1% of GDP in 2019 to a deficit of 1.9% in 2020.
AfDB said the exchange rate depreciated ZWL2.5 in February 2019 and stabilizing around ZWL82 to the US dollar in December 2020.
Poverty stood at 70.5% in 2019 while unemployment remained high at over 21%.
It said the banking system is stable.
“Banks have some room to increase credit,” it said. The loan-to-deposit ratio was 38.8% in 2020 against a benchmark of 70%. Non-performing loans are at 3.23%, well under the regulatory benchmark of 5%. “The capital adequacy ratio is more than three times the regulatory requirement of 12%.”
While modest recovery is expected in 2021, but AfDB said, the outlook is clouded by a number of factors.
“The pandemic and government policies to contain the disease will affect production levels across all sectors—although a partial easing of border closures may help. The industrial and mining sectors are equally faced with reduced competitiveness, low commodity prices, and interruptions in electrical service that disrupt output,” stated AfDB.
AfDB said the problems are exacerbated by debt distress and arrears, and low international reserves that can cover less than one month of imports.
“Zimbabwe’s economic situation will remain challenged in 2021, although the foreign exchange reforms, especially the weekly Forex auctions, introduced in June 2020 could create price stability and create room for modest economic recovery.”
Zimbabwe’s total public debt is $11.1 billion (53.9% of GDP), of which 95.6% is external. Including $6.4 billion in arrears to international financial institutions, bilateral, and private creditors.
The southern African nation has been in default since 2000. A Staff Monitored Program with the International Monetary Fund to help Zimbabwe implement economic policies from May 2019 to March 2020 collapsed in September 2019. The government and the Fund have not agreed to a new arrangement, which would be aimed at helping Zimbabwe clear its arrears.
“As a result, the country will have to continue to rely largely on domestic resource mobilization and borrowing from non-Paris Club members like China. The international financial institutions will not resume lending until debt arrears are cleared,” AfDB added.
Economic activity in Africa was constrained in 2020 by an unprecedented global pandemic caused by COVID–19. Real GDP in Africa is projected to grow by 3.4% in 2021, after contracting by 2.1 percent in 2020. This projected recovery from the worst recession in more than half a century, AfDB said, will be underpinned by a resumption of tourism, a rebound in commodity prices, and the rollback of pandemic-induced restrictions. The outlook is, however, subject to great uncertainty from both external and domestic risks .
By Staff Reporter