Zimbabwe’s economy worsening: International Crisis Group

Zimbabwe’s economy worsening: International Crisis Group
RBZ-Governor-Dr-John-Mangudya-talks-to-Finance-Minister-Patrick-Chinamasa

Reserve Bank of Zimbabwe governor John Mangudya and Finance Minister Patrick Chinamasa

AN international think-tank has described Zimbabwe as floundering, arguing that there were very little prospects of its economy recovering.
In its latest report, the International Crisis Group (ICG) said political uncertainty was worsening, while the economy, which has touched a slippery slope, was becoming increasingly precarious.
“Zimbabwe is floundering, with little sign of meaningful reform and sustainable, broad-based recovery,” ICG said in the report.
“Political uncertainty and economic insecurity have worsened; the Zimbabwe African National Union – Patriotic Front (ZANU-PF) government has consolidated power, as the opposition stumbles, but is consumed by struggles over who will succeed President Robert Mugabe. Upbeat economic projections by international institutions are predicated on government rhetoric about new policy commitments and belief in the country’s potential, but there are growing doubts that ZANU-PF can ‘walk the talk’ of reform,” the think-tank noted.
It also highlighted that political and economic conditions were “likely to deteriorate further due to insolvency, drought and growing food insecurity”.
“Economic constraints have forced Harare to deal with international financial institutions and Western capitals, but to regain the trust of donors, private investors and ordinary citizens, the government must become more accountable, articulate a coherent vision and take actions that go beyond personal, factional and party aggrandizement,” ICG said.
The ICG report was prepared before the launch of Zimbabwe People First, a political outfit led by Joice Mujuru, the country’s former vice president who was sacked from the ruling party for allegedly plotting to unconstitutionally topple President Mugabe from power.
Her party is likely to add to the fragmentation of the opposition in Zimbabwe, but is seen presenting a fresh challenge to wrest power from President Mugabe’s government which has ruled the country since independence in 1980.
Zimbabwe’s faltering economy, once a whale in the Southern African Development Community (SADC), plunged by a cumulative 51 percent between 1999 and 2008, sliding from second position to an eleventh spot in the region.
When the country adopted a hard currency regime in 2009 after ditching its own currency due to hyperinflationary pressures, the economy burst into a post-hyperinflation rebound, registering gross domestic product growth averaging seven percent.
Recent indications are that the economic slowdown experienced in the past three years could eventually plunge the country into contraction, worsening the country’s economic woes.
Zimbabwe’s economy was once only second to South Africa’s, the region’s largest economy.
But it is now only bigger than that of Lesotho, Malawi, Namibia and Mauritius.
SADC has 15 member States. These are South Africa, Botswana, Angola, Zambia, Malawi, the Democratic Republic of Congo, Mozambique, Tanzania, Mauritius, Zimbabwe, Namibia, Madagascar, Seychelles, Swaziland and Lesotho.
Economist, Godfrey Kanyenze, agreed that the country’s economic fortunes were worsening.
He said while Zimbabwe’s economy grew after the country abandoned its local currency in favour of multiple foreign currencies to help contain hyper-inflation, it had in fact remained weak.
“Cumulative economic decline amounts to at least 51 percent during the period between 1999 and 2008 and as a result, Zimbabwe declined from being the second largest economy to position 11 in SADC.
“The adoption of a multi-currency regime and cash budgeting and discontinuation of quasi-fiscal operations of the central bank killed hyper-inflation and helped restore price stability.
He said economic growth averaged 10,6 percent during the period between 2009 and 2012, but growth declined to an estimated 4,5 percent in 2013, 3,8 percent in 2014 and 1,5 percent in 2015.
This, he said, reflected the liquidity shortages in the economy, low domestic savings, power shortages and drought.
Kanyenze said the Zimbabwe Agenda for Sustainable Socio-Economic Transformation growth targets of 6,1 percent in 2014 and 6,4 percent in 2015 had become far-fetched.
Although Finance Minister, Patrick Chinamasa, has projected the economy to grow by 2,7 percent this year, driven by mining, tourism and the financial sector, the current state of the economy has impacted on both employment and industrial output.
At least 94,5 percent of currently employed persons are informally employed.
This has resulted in government’s revenue base dwindling, eroded largely by a shrinking economy battered by company closures and increased job losses.
The majority of companies still in operation are on the verge of collapse. A significant number of companies have closed completely, rendering thousands of workers jobless and adversely affecting revenue collection.
The manufacturing sector, which contributed about 26,9 percent to the economy annually at its peak in 1992, is now a shadow of its former self, with contributions averaging 11,7 percent between 2009 and 2014.
Industrial capacity utilisation shrunk from 35,8 percent in 2005 to only 18,9 percent in 2007 and below 10 percent in 2008 before improving to 33 percent in 2009, 43,7 percent in 2010, 57,2 percent in 2011 and climbing down to 44,2 percent in 2012 and 39,6 percent in 2013, 36,3 percent in 2014 and 34 ,3 percent last year.
This demonstrates the failure of the cash-strapped government and private sector efforts to arrest de-industrialisation, mainly due to the absence of affordable funding to bailout struggling local companies.
The Confederation of Zimbabwe Industries (CZI), in its latest state of the manufacturing sector survey, observed that industries were “under serious threat”.
“De-industrialisation has rea-ched catastrophic levels, with dire consequences to the state of the economy,” said CZI.
The country’s frail economy has also suffered severe knocks from retrenchments.
The situation is now so dire that government is no longer able to guarantee consistent public service salary dates.
Government is currently struggling to pay monthly salaries for nearly 300 000 of its workforce. Salary costs currently account for more than 80 percent of government expenditure, meaning that a paltry amount remains for crucial infrastructure development projects critical in turning around the economy.
Kanyenze said: “The size of the public service increased from 203 362 in February 2009 to 276 163 by December 2014, a 35,8 percent growth rate. This was despite policy of general freeze on recruitment introduced by government in 2011.
“The institutional weaknesses prevalent in government and public enterprises are major sources of risk which may undermine the 2016 National Budget implementation. Weaknesses of institutions and corporate governance shortcomings are a recurrent issue raised in the reports of the Auditor and Comptroller General.”
The country last year tabled proposals to clear US$1,8 billion in arrears to the World Bank (WB), IMF and the African Development Bank (AfDB), to pave way for new funding. This is part of government’s effort to revitalise the economy.
The country has been unable to access offshore funding due to international arrears to the multilateral financial institutions and other lenders.
The arrears clearance plan, which was presented to international creditors during IMF and WB annual meetings in October last year by the government in Lima, Peru, entails Zimbabwe clearing arrears to IMF amounting to US$110 million, WB (US$1,15 billion) and AfDB (US$601 million) by the end of April this year.
The strategy also involves development of a new comprehensive country financing programme supported by the AfDB, the IMF and the WB to attract long-term financing to promote growth and debt sustainability
Zimbabwe last year recorded US$3,4 billion in exports against imports of US$6,3 billion, resulting in a trade deficit of US$2,9 billion compared to US$2,7 billion in 2014.
This reflects the country’s over- dependence on imports.
The huge import bill is also fuelled by the continued depreciation of the rand against the US dollar, which lost over 13 percent of its value against the greenback since January 2015, undermining the competitiveness of Zimbabwe’s exports.
This year, exports are projected to increase to US$3,7 billion due to expected improved performance of tobacco.newsdesk@fingaz.co.zw

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