The International Monetary Fund (IMF) says Zimbabwe’s economy will contract by 10,4% this year, much higher than its earlier prediction of 7,4%, but expects a rebound next year.
It also expects the annual inflation rate to close the year at 495% and predicts an economic rebound of 4,6% next year.
A cocktail of Covid-19 lockdown measures, currency volatility, high inflation, wage erosion, shortages of foreign currency, reduced capacity of businesses, and company closures have quickened Zimbabwe’s economic contraction.
Mid-year, the World Bank announced that it expected a 10% contraction while the African Development Bank (AfDB) projected an economic decline of between 7,5% and 8,5% for Zimbabwe.
“In 2019 Zimbabwe authorities introduced the Real-Time Gross Settlement dollar, later renamed the Zimbabwe dollar, and are in the process of re-denominating their national accounts statistics. Current data are subject to revision,” the IMF said in its new World Economic Outlook titled A Long and Difficult Ascent released during the current Annual Spring Meetings in the United States.
Responding to the IMF downgrade, Finance minister Mthuli Ncube dismissed it as an “opinion” rather than a certainty as Treasury has its own economic projections.
“I think we all agree that during this Covid-19 moment, all the economies around the world have been impacted without exception. We have got the exception of China which has gone to show growth that is sort of breakeven in a way, but every other country is in the negative territory; so Zimbabwe is no different,” Ncube said in response to questions by this paper at a cabinet event on Wednesday.
“We too are experiencing negative growth, but our recent assessment shows that the situation is not as bad as initially thought. We had projected a growth of -4,5%. Our teams are busy on the ground again trying to further analyse that growth.
“We also have our own numbers. We have got our own batch of statistics — we have got the central bank and Treasury who look after these numbers. These numbers are not imposed on countries by the way. It’s an opinion by just one institution out there, albeit, an important institution.
“I don’t want to get into a duel. All I am saying is that we have numbers from the African Development Bank, World Bank, IMF, ECA (United Nations Economic Commission for Africa), OECD (Organisation for Economic Co-operation and Development) and then we have got the Zimbabwe government numbers.
“So, you have about five sources of numbers but they all point in the same direction which is that this Covid-19 year has been tough and then it’s tough for every country in the world including Zimbabwe so we don’t have to agree with any of them. But we make use of their information just in case we have missed something in the way we arrive at our numbers that’s all we do.”
He said government numbers were showing that company earnings were quite strong and company volumes were quite strong.
According to international financial institutions (IFIs), policy missteps — lack of effective fiscal-monetary-forex policy coordination and significant quasi-fiscal activities by the central bank — undermined the de-dollarisation effort and resulted in a rapid depreciation of the local currency and high inflationary pressures.
The high inflation eroded disposable incomes for millions of the formal and informal workers thus depressing domestic demand which has caused a slowdown in economic activity.
Foreign currency shortages and Covid-19 lockdown measures also reduced the capacity of companies to import raw materials and thus increase production leading to some company closures as well as depressed volumes. The Zimbabwe Revenue Authority expects a number of company closures by year-end.
And while interventions by the authorities to curtail parallel market activity like nearly cutting all agency mobile banking, making firms liquidate 20% of domestically generated forex and limiting daily transaction limits have curtailed runaway inflation the economy still remains volatile.
“Though some stability in the official and parallel market exchange rates has largely curbed price volatility on the markets, some price increases of certain goods and services continue to be recorded,” USAid food security arm, FEWS NET, said in its September 2020 update of Zimbabwe.
Further, during the period July 2019 and July 2020, government incurred a debt of US$2,23 billion between July 2019 and July 2020 based off central bank statistics. Of this debt, 80% is blocked funds from the private sector, 10% is debt for services rendered to the government during the period and the remaining 10% is interest on existing debt owed to IFIs.
“I think the projection by government has been overly optimistic. I think the reality of the situation is that I think that there are significant structural challenges that we need to address before we can go back to an era of positive growth and obviously that outlook has been affected, quite adversely, by the Covid-19 pandemic,” economist Prosper Chitambara said in a recent interview with the South African news broadcaster SABC.