• Tue. Jul 16th, 2024

Zim poised to record softer growth for reminder of year

ByEconomic Times

Jul 22, 2023

By ETimes

A research firm has become less optimistic about Zimbabwe’s growth outlook owing to an increasingly dollarising economy.

The country has been fast dollarizing, with statistics from the Zimbabwe Statistics Agency revealing that 78 percent of transactions for food and goods purchases are now being done in foreign currency, while 70% of the government’s domestic expenditure is in US dollars.

In the informal economy, transactions are almost entirely in US dollars, and the loss of value has created uncertainty for the country’s de-dollarisation plan.

“De-facto-re-dollarisation has occurred and the government is expected to resist complete formal re-dollarisation of the economy in the outlook,” First Mutual Wealth stated in its latest second quarter of 2023 economic review and investment outlook.

Authorities, however, continue to ramp up efforts to promote the use of the domestic unit to regain control over monetary policy and avoid over-reliance on foreign currencies.

“Strong policy positions are unlikely in the near-term to fight this trend until the election cycle is completed. In this regard we expect significant policy fluidity post elections but more aggressive dollarisation within formal channels in the run up towards elections.”

The Treasury recently instituted a series of measures aimed at stabilising the exchange rate, but short-term effects have seen a shortage of ZWL on the local market.

“With dollarisation we can expect slower growth, thinner margins and as a result softer gross domestic product (GDP) growth expectations for the balance of the year,” reads the report.

Economists have also warned of an increased risk of major revenue loss owing to the growing use of the US dollar as the Zimbabwean economy moves towards “full re-dollarisation”.

The southern African country is only a month and a few weeks away from the 2023 presidential and parliamentary polls and it is currently facing economic challenges characterised by high inflation and exchange rate disparities.

“Depending on the political outcome in August 2023, more aggressive policy reforms are expected if the incumbent is defeated, but more of the same if the opposition fails to win.”

Although local authorities continue to have a more hopeful perspective for the country’s GDP growth this year—they anticipate growth of approximately six percent as compared to the initial prediction of 3.8%—the current state of local economic complexity hints at a more pessimistic picture, according to FBC Securities.

The World Bank has reduced its economic growth predictions for Zimbabwe from 3.6% to 2.9%, citing structural constraints, price and currency rate volatility, and global shocks as limiting factors – Harare

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