FINANCE minister Mthuli Ncube forecasts Zimbabwe’s fragile economy to contract by 4,5%, buffeted by the devastating impact of Covid-19, drought and prolonged power outages, but sees inflation dropping to 300% by year-end.
His projection on gross domestic product is at variance with forecasts from various multilateral lending institutions.
Inflation is currently hovering around 800%, although Imara, a wealth management firm, sees it peaking at 1 200% as the effects of the pandemic set in.
Zimbabwe has recorded 1 362 Covid-19 infections, with 19 deaths and 425 recoveries.
Prior to the onset of the global pandemic, which saw Zimbabwe imposing a lockdown on March 30, the Treasury boss had projected the economy to grow by 3%, buoyed by fiscal consolidation measures being rolled out by government.
Presenting the 2020 mid-term budget review statement in the National Assembly yesterday, Ncube did not allocate additional budgetary outlays to rejuvenate Zimbabwe’s floundering economy. Analysts say in the absence of a financial rescue package, the economy will continue on a downward spiral.
The Treasury boss projected the economy to rebound in 2021, growing by 7,4%, although the African Development Bank (AfDB) has a gloomy outlook for the continent, particularly for countries like Zimbabwe which have not spent substantially to ease the effects of the global pandemic. The continental bank, in its Africa’s Economic Outlook Amid Covid-19 June Report, highlighted that the continent’s GDP would shrink by 3,4%, as cash-strapped nations struggle to contain the catastrophic pandemic.
In April, Ncube, acknowledging the herculean task of overcoming the pandemic-induced negative growth, pleaded for a US$200 million rescue package from international financial institutions (IFIs).His request was rebuffed.
Yesterday, Ncube underscored that with government ringing in a raft of measures to stabilise Zimbabwe’s volatile currency, month-on-month inflation would decline from 31,7% in June to 5% by year-end.
“… inflationary pressures which subsided in the last quarter of 2019 and in January 2020, resurged from February 2020 to June 2020. However, inflation is expected to gradually decline in the second half of 2020, from the peak of 785,5% in May 2020, to 300% in December 2020, responding to current monetary and fiscal policy interventions.
“The projected annual inflation is consistent with reducing the month-on-month inflation from 31,7% in June to 5% in December 2020.”
With Zimbabwe’s currency in freefall, Ncube said, the recently introduced weekly foreign currency auction system meant to stabilise the exchange rate, which this week stood at US$1:ZW$68, would bolster efforts to contain runaway inflation.
The government introduced the foreign currency auction system, coupled with suspending trading on the Zimbabwe Stock Exchange (ZSE) and clamping down on mobile money platforms as part of a policy move to arrest the tide of speculative demand for hard currency.
“Exchange rate levels and movements have far-reaching implications for inflation, competitiveness of exports, efficiency in resource allocation, international confidence and balance of payments equilibrium. Therefore exchange rate developments are a matter of national interest and concern to Government, the business community and the general public,” Ncube said.
“In order to stabilise the exchange rate and anchor inflation, Government introduced the foreign exchange Dutch Auction system on Tuesday, 23rd June 2020, which is designed to reduce exchange rate instability. The auction is expected to enhance transparency in the management of foreign exchange, achieve a realistic exchange rate (price discovery) for the ZW and discourage speculative demand for foreign currency.”
Growth across the economic spectrum would remain depressed, Ncube said, as Zimbabwe’s comatose economy takes a battering from the impact of the global pandemic, which will see the global economy shrinking by 5,2% according to the WB.
The mining sector, which accounts for 60% of foreign currency receipts, is expected to shrink significantly throwing into disarray plans to rake in US$12 billion from mineral exports. The sector has not been spared from the ravages of prolonged power cuts, limited foreign currency and widespread job losses militating against the economy.
Ncube said: “Therefore, growth for mining sector is now projected to slow-down to -4,1% in 2020, reflecting the impact of Covid-19 and other challenges evolving around retentions. These include erratic power supply and loss of skills in the mining sector.”
The manufacturing sector, reeling from a myriad of challenges, is also projected to shrink by -10, 8% from an initial growth target of 1,9%.
With most countries currently undergoing varying phases of lockdown that have restricted travel, Ncube cautioned that the tourism sector would decline by 7,4%. Global travel arrivals will drop by 97% between March and April, according to the United Nation Tourism Organisation (UNWTO).
“Zimbabwe’s foreign tourist arrivals followed the global path to April 2020 and average hotel occupancy rates, which had peaked to 33% in February from 27% in January, dipped to a low of 3% in March 2020,” Ncube said.
With little fiscal space to manoeuvre, the Treasury boss presented a ZW$63,6 billion 2020 budget against projected revenue inflows of ZW$58,6 billion.
Battling to extinguish a US$8,094 billion public debt, Zimbabwe has also been shut out by multilateral lending institutions, which have emphasised that the country should implement sweeping economic reforms to set its troubled economy on a firm recovery and growth trajectory.