Outlook for Zimbabwe remains negative

 Outlook for Zimbabwe remains negative

Outlook for Zimbabwe remains negative.

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The African Development Bank (AFDB) says outlook for Zimbabwe remains clouded with challenges as the industrial and mining sectors are faced with reduced competitiveness, low commodity prices, and interruptions in electrical service that disrupt output in 2021.

The problems are exacerbated by debt distress and arrears as well as  low international reserves that can cover less than one month of imports.

Zimbabwe has been in default since 2000 with its total public debt now standing at  US$11,1 billion (53,9% of GDP), of which 95,6% is external  including $6,4 billion in arrears to international financial institutions, bilateral, and private creditors.

“A  Staff Monitored Program with the International Monetary Fund to help Zimbabwe implement economic policies from May 2019 to March 2020 collapsed in September 2019. The government and the Fund have not agreed to a new arrangement, which would be aimed at helping Zimbabwe clear its arrears. As a result, the country will have to continue to rely largely on domestic resource mobilization and borrowing from non-Paris Club members like China. The international financial institutions will not resume lending until debt arrears are cleared,” Noted AFDB

Zimbabwe has been battling a number of economic issues besides  debt distress.

While fiscal and current account deficits recovered after July 2020, both deteriorated for the year as a whole but the budget deficit rose from 2,7% in 2019 to 2,9% in 2020.

The current account went from a surplus of 1,1% of GDP in 2019 to a deficit of 1,9% in 2020.

The exchange rate depreciated ZWL2,5 in February 2019 and stabilizing around ZWL82 to the US dollar in December 2020.

Poverty stood at 70,5% in 2019 while unemployment remained high at over 21%.

AFDB however projected a modest economic recovery for 2021 on the  condition that  effective measures are taken to stabilize foreign exchange and avoid excessive money creation.

“ But the outlook is clouded by a number of factors. The pandemic and government policies to contain the disease will affect production levels across all sectors—although a partial easing of border closures may help.” AFDB said

Zimbabwe was already in recession before the COVID–19 pandemic, contracting by 6% in 2019.

Output fell because of economic instability and the removal of subsidies on maize meal, fuel, and electricity prices, suppressed foreign exchange earnings; and excessive money creation.

The onset of the COVID–19 pandemic and continued drought led to 10% contraction in real GDP in 2020 while  Inflation soared, averaging 622,8% in 2020, up from 226,9% in 2019.

Foreign exchange reforms which were instituted in June 2020 dampened an inflation that raged an annual rate of 838% in July.

“The banking system is stable. Banks have some room to increase credit. The loan-to-deposit ratio was 38,8% in 2020 against a benchmark of 70%. Non-performing loans are at 3.23%, well under the regulatory benchmark of 5%. The capital adequacy ratio is more than three times the regulatory requirement of 12%.” AFDB noted.

Generally, economic activity in Africa was constrained in 2020 by an unprecedented global pandemic caused by COVID–19.

AFDB projects Real GDP in Africa to grow by 3,4% in 2021, after contracting by 2,1% in 2020. This projected recovery from the worst recession in more than half a century will be underpinned by a resumption of tourism, a rebound in commodity prices, and the rollback of pandemic-induced restrictions.

“The outlook is, however, subject to great uncertainty from both external and domestic risks.” the bank said.

Louis Schoeman

Louis is a freelance writer that has been featured on investing.com, entrepreneur.com, marketwatch.com, benzinga, seekingaplha. Louis focusses on helpful news and tips on cfd’s, forex trading and crypto. When he is not writing world class articles, he is an avid trader in crypto.

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