World Bank says Zim should ensure economic recovery is broad-based not regressive

World Bank says Zim should ensure economic recovery is broad-based not regressive
The World Bank headquarters.

The World Bank headquarters.

THE World Bank says Zimbabwe has enormous potential for inclusive growth, but it will be a complex challenge to ensure that recovery is broad-based and not regressive.

In its report, Zimbabwe Economic Update: Changing Growth Patterns, the financial institution says the government has demonstrated a credible commitment to broad-based growth, but warns that without correcting the key imbalances in both private and public sector service delivery, the recovery could take place in a way that is regressive and could compromise Zimbabwe’s path toward a fair distribution of the gains from further economic growth.

The Bank also added that the increasingly heavy reliance on user fees in Zimbabwe, may have negative distributional impacts on access to services and health outcomes adding that while donor funding for healthcare in Zimbabwe was lower than in other countries in the region, it exceeded Government funding in all categories except wages.

“Zimbabwe currently receives about US$12 per capita in annual donor support for health expenditures, less than half of the allocation for Zambia and lower than the allocations for Tanzania, Mozambique and Malawi. Two-thirds of donor financing is devoted to HIV/AIDS, tuberculosis and malaria programs. With the exception of HIV/AIDS programming, donor funding exceeds Government funding in all non-wage expenditure categories,” reads the report.

“Despite Government’s focus on maintaining competitive wage rates, the attrition of qualified workers has also prompted donors to establish programs to augment the salaries of healthcare workers directly engaged in service delivery.”

The financial institution added that, as a country, Zimbabwe’s education expenditures relative to GDP were among the highest in Sub-Saharan Africa.

The Bank said it was glad the authorities had recognized that clearing arrears would allow for a resumption of longer term and concessional development financing both for investment and for buffering the impact of current shocks on the poor and vulnerable.

“Clearing external debt arrears is important to Zimbabwe’s medium-term growth trajectory. The total public and publicly guaranteed external debt was estimated to be $7.1 billion (51 percent of GDP) as at September 2015, with external arrears occupying a large share at US$5.6 billion (79 percent of total external debt), “ read the report.

To this end, the Government has presented a strategy to clear Zimbabwe’s arrears to multilateral institutions in 2016 using own resources and loans, at a meeting with its international creditors during the 2015 annual World Bank – IMF meetings.

“If successful, this strategy will go a long way to lifting Zimbabwe’s medium-term growth outlook.”

The World Bank said even though revenues are expected to recover in 2016 and 2017, allowing an increase in capital spending while maintaining responsible fiscal balances, the government would have to carefully manage expenditure pressures in order to public service delivery.

“After a difficult year in 2016, the agricultural sector is expected to resume its strong growth trend in 2017 and 2018, bolstered by the adoption of new climate-specific seed varieties and other measures to adapt to climate change.”

Growth is also projected to accelerate in both the industrial and service sectors. The industrial sector is expected to recover despite a difficult domestic environment.

Mining sector output is projected to rebound as a number of important mines resume or increase production especially platinum production and growth in the ASM subsector continues. Similarly, manufacturing growth is projected to accelerate as certain subsectors complete their restructuring and the modest deflationary trend improves the sector’s international competitiveness.

External trade will continue to be the engine of growth and employment creation. Mining and agriculture constitute a large proportion of Zimbabwe’s tradeable goods and services, and a recovery in these sectors will support a broader improvement in the trade balance.

Moreover, deflation is expected to put downward pressure on consumption as consumers defer spending in anticipation of rising purchasing power and as a result, bank deposits are projected to continue increasing at their current pace while the growth of lending remains low.

Rising deposits will boost liquidity, but bank lending will remain conservative due to NPLs that increased rapidly between 2013 and 2015.

The report says Government’s fiscal stance is expected to remain cautious over the medium-term. The Civil Service Commission has launched a personnel restructuring and rationalization program aimed at streamlining the size of the public service and better aligning staff resources with agency mandates. FinX

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