Zimbabwe: AfDB Revises Zim Economic Outlook

Zimbabwe’s real gross domestic product (GDP) is projected to contract by between 7,5% and 8,5% this year due to a fall in production as a result of the outbreak of the Covid-19 pandemic, the African Development Bank (AfDB) has said.

In its African Economic Outlook 2020 Supplement Amid Covid-19 report, the regional banking institution said the country is unlikely to achieve previously projected growth which was expected to reach 4,6% this year and 5,6% next year, due to challenges posed by the pandemic.

The country had projected to achieve real GDP growth of 4,6% in 2020 and 5,6% in 2021 if corrective measures were taken to stabilise foreign exchange supply and avoid excessive money creation.

Recovery was expected in agriculture and mining, backed by increased and well-targeted investment.

“But production is now expected to fall in both sectors, largely due to the outbreak of the pandemic and associated shocks and policy actions to limit the infections.

And reductions in tourism earnings will exacerbate foreign exchange shortages,” AfDB said in its report.

“As a result, the economy is projected in 2020 to contract by between 7,5% if the pandemic subsides by July (baseline) and 8,5% if it continues through December (worst case), with modest recoveries in 2021,” it said.

AfDB said the fiscal deficit was expected to remain above 5% due to the negative effects of the tax relief measures and weak business activity.

The Zimbabwe Revenue Authority has reported that the Covid-19 pandemic has greatly affected revenue collection with targeted revenues likely to be missed.

In April 2020 (the first month of the lockdown), its revenues were about 6,9% below their target for the period, a trend expected to continue.

Although the Reserve Bank of Zimbabwe adopted accommodative monetary policy to ease market liquidity constraints, AfDB said the effect was likely to be offset by carryover structural weaknesses, including shortages of foreign exchange and lack of confidence in the Zimbabwean dollar.

“Inflation is therefore projected to average 217% in 2020 (worst-case scenario), amplified by the Covid-19-induced shocks. Since the unpegging of the exchange rate from the US dollar in February 2019, the exchange rate depreciated from ZW$2,5 to ZW$25 (over $70 in parallel market) per US dollar in May 2020,” it said.

“The deterioration of the trade balance and secondary income account will push the current account to a deficit territory of 2,0% of GDP in 2020 (baseline) which could widen further to 2,7% (worst case), wiping out a surplus of 1,1% posted in 2019.”

AfDB, however, said Zimbabwe can emerge from the current health and economic crisis strongly.

“The country’s vast natural resources, public infrastructure still in relatively good condition, and a skilled labour force give the country an opportunity to join supply chains in Africa and increase trade within the context of the African Continental Free Trade Area,” it said.

“Coupled with policy responses to restore stability in the foreign exchange market and control inflation, the economy could modestly recover in 2021,” AfDB said.

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