The Financial Gazette

Bernard Mpofu, Chief Business Reporter

RESERVE Bank of Zimbabwe governor, Gideon Gono, has warned that the country’s economic recovery may slow down on the back of knock-on effects from the Eurozone debt crisis and the continuing economic turmoil in the United States.
Gono said the recession in some of the world’s leading economies could affect the domestic economy, which is currently projecting bullish performance driven by anticipated firming in international commodity prices and a recovery of tobacco output.
The central bank chief said in his Monetary Policy Statement that Zimbabwe, for the first time since the global crisis emerged, was likely going to suffer from its ripple effects, although he remained optimistic that the country would maintain a growth trajectory.
The country, which emerged from a decade-long contraction, which ended in 2008, is projecting a Gross Domestic Product (GDP) growth of 9,4 percent, buoyed by mining and agriculture.
“The (Monetary Policy) Statement comes at a time when the economy is exposed once again to financial and economic vulnerabilities emanating from the continued fragility of the global economy in particular the debt crisis in the United States as well as the Eurozone and the difficulties that Japan has had particularly last year. In view of Zimbabwe’s commodity dependence, declines in global activity and commodity prices will have inescapable consequences for the country’s export earnings hence its output, incomes and fiscal revenues,” Gono said.
“Diaspora remittances, which have played a critical part in our economic turnaround and investment flows are likely to weaken with knock-on effects on domestic demand, banking sector liquidity and loan quality resulting in more difficult credit conditions.
“Furthermore, meaningful recovery of the Zimbabwean economy is also contingent upon increased financial intermediation by the country’s banking sector. The intermediary role of banks remains critical in the redeployment of surplus inves-tible funds into key productive sectors of the economy. This is particularly so given the persistent liquidity challenges that have lingered in the economy since the introduction of the multicurrency system.”
Experts say Zimbabwe’s economic rebound, which took off in 2009, will this year reach a plateau, averaging GDP growth of five percent per annum.
Skeptics also contend that uncertainty over the holding of the next general elections and lack of clarity on the indigenisation and empowerment regulations compelling foreign-owned companies to dispose of 51 percent interest to blacks over a prescribed timeline could again slow down growth.
Currently saddled with a debt overhang that has resulted in the     disqualification of the country from accessing lines of credit from multilateral institutions, Zimbabwe has    since the introduction of the multicurrency system in 2009 relied on domestic revenue and limited lifelines from regional financial institutions.
“The successful orientation of the Zimbabwean economy on a sustained recovery and growth path requires that the country’s unsustainable external debt be resolved expeditiously. Delays in the resolution of the country’s external debt continue to militate against efforts by both the public and private sectors to mobilise external lines of credit to recapitalise their operations and finance critical projects,” said the Reserve Bank governor.
“An effective debt resolution strategy, if timely implemented, will undoubtedly unlock the much-needed external lines of credit under any monetary regime.
“The resolution of the country’s external debt is thus a vital cog in adequately complementing policy measures geared at attaining an all-encompassing economic recovery process that is inclusive and sustained.”