Zimbabwe’s economy has proven to be resilient in the face of large shocks, said the International Monetary Fund (IMF) while warning that uncertainty still prevails.
In order to discuss recent economic events and the economic prospects, an IMF staff team led by Dhaneshwar Ghura held a staff visit in Harare from September 12–19, 2022.
Support for a number of industries that were hurt by previous financial crises, money for the coordinated elections in 2023, and strategically positioning the nation for the future are all issues that need to be handled.
The southern African economy is agro-based, but the 2021/22 farming season output is poised to be lower than the prior year given the impact of adverse weather conditions.
“Zimbabwe’s economy has shown resilience in the face of significant shocks. Russia’s war in Ukraine, the poor rainfall, and price pressures are adversely affecting economic and social conditions in Zimbabwe, already battered by the Covid-19 pandemic,” said Ghura.
Inflation in August reached 285% over a year earlier, signaling the resurgence of pressures on pricing and currency rate depreciation. The inflation performance in August was the result of a series of changes in monetary policy in June, which included the release of gold coins as a tool for investors to store wealth. The apex bank anticipates a decrease in inflation as gold coins eat up excess local currency holdings.
In 2022, the treasury had projected the economy to grow by 5.5%, backed by higher output in mining, manufacturing, agriculture, and construction, as well as in the accommodation and food services sector. But, it was lowered to 4.6%, and it will pick up to 5% next year.
“After rising to about 7% in 2021, real GDP growth is expected to decline to about 3½ percent in 2022 reflecting a slowdown in agricultural and energy outputs owing to erratic rains and rising macroeconomic instability, amidst a recovery in mining and tourism.”
He said: “Uncertainty remains high, however, and the outlook will depend on the evolution of external shocks, the policy stance, and the implementation of inclusive growth-friendly policies.”
The IMF mission takes note of the government’s attempts to reduce inflation and stabilize the local foreign exchange market.
“In this regard, the recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap.”
The official rate has already crossed the 600 mark and is now closing towards the gap between black market rates.
He said more work is required to speed structural reforms and firmly anchor macroeconomic stability.
“In line with recommendations from the 2022 Article IV consultation, the near-term macroeconomic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions,” he said.
To promote transparency, conduct monetary and exchange rate policy better, and increase central bank independence, he said, the quasi-fiscal activities of the RBZ should be moved to the budget.
“Structural reforms aimed at improving the business climate and reducing governance vulnerabilities are key for promoting sustained and inclusive growth. Durable macroeconomic stability and structural reforms would bode well for supporting Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025).”
Harare has made a commitment to re-engage with external creditors, including by resuming token payments and preparing a debt resolution strategy. Since late 2016, when Zimbabwe paid off its remaining IMF debt, it has been a member of the Fund in good standing. Due to Zimbabwe’s unmanageable debt and official external arrears, the IMF is unable to provide financial assistance – Harare