Zim sovereign risk improves — NKC

Zim sovereign risk improves — NKC
Finance and Economic Development Minister Patrick Chinamasa and the Reserve Bank of Zimbabwe governor, John Mangudya

Finance and Economic Planning, Minister Patrick Chinamasa and the Reserve Bank of Zimbabwe governor, John Mangudya

INTERNATIONAL research firm, NKC Economics (NKC), a unit of leading global advisory firm Oxford Economics, has revised its outlook on Zimbabwe’s sovereign risk rating from negative to stable, citing political improvements in the country.
A sovereign credit rating is the credit rating of a country or sovereign entity and gives investors an insight into the level of risk associated with investing in a particular country, including its political risk. NKC analysts Gary van Staden and Jee-A van der Linde pointed out that the outlook improvement follows removal of long-serving former president Robert Mugabe and ascension of President Emmerson Mnangagwa, whose foreign policy has a deliberate bias towards economic development.
“As a result of our economic analysis, as well as incorporating our political assessment, we have decided to change the outlook on Zimbabwe’s ‘C’ sovereign risk rating to stable, from negative previously.
“The change in outlook on the sovereign risk rating is motivated by a similar change in our outlook for political risk,” the NKC economists said.
However, they maintained the overall political risk rating unchanged at moderate.
They advised investors not to anticipate an upgrade of “the rating until after the elections”.
“As things stand, and given the state of the opposition, we believe ZANU-PF are the frontrunners to win a majority in the polls,” they said.
Highlighting that the removal of Mugabe changed the destiny of Zimbabwe and injected long-lost optimism and hope even though the new leadership installed by the military had its own history of misdeeds and failings, NKC said the country’s short to medium term outlook depended on the conduct and outcome of elections scheduled to take place in the next few months.
“We believe ZANU-PF will lay off the institutionalised rigging and intimidation and try to run a free and fair poll — then foreign interest in the country will surge,” the analysts said.
In January, the European Union indicated to the new Zimbabwe government that it was ready to review its ties with the country and support its re-engagement with international financial institutions on the basis of a clear plan for political and economic reform.
NKC pointed out that Zimbabwe’s political environment presently resembled a canvas on which any number of policy expressions could be drawn that would influence the appearance of the final picture.
“But this is no pristine canvas — it retains the smears and stains of a past characterised for decades by mismanagement, corruption, state capture, ruthless repression, bloodshed and theft of anything valuable, including personal freedom.
“Some of those stains and smears are going to prove difficult to remove or cover up with fresh brushstrokes,” NKC noted.
They noted that over the short term, the economy would remain under severe pressure.
“Following a contraction projected for this year, the economy should pick up gradually though, with real GDP (gross domestic product) growth averaging 1,4 percent per annum over the 2017-19 period.
“It is worth noting that Zimbabwe is set to grow from a relatively low base thus requiring rational judgment when interpreting its performance,” NKC added.
The analysts said the country’s foreign currency reserves remained low, while government had opted to pump additional bond notes into the economy to incentivise exports.
“In turn, government has limited imports to a specified list, which has been placing constraints on exporters who depend on intermediate inputs. Consumer prices have started to increase as retailers acquire foreign currency in the parallel market at substantially higher prices. Even though the Reserve Bank of Zimbabwe’s (RBZ) consumer price index inflation level suggests heightened inflationary pressures, several other sources suggest that the RBZ still significantly underestimates the level of inflation.
“On the fiscal front, even though the government is making strides in increasing revenue collection, this has been offset by high fiscal spending. More specifically, the country’s large public wage bill remains a hindrance to reducing the fiscal deficit.
“In short, Zimbabwe’s political setting is leading the economic environment at the moment and an alignment of the two would portend a state of stability from which the country can advance on its new-found path,” NKC said.

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