Zim’s trade deficit balloons


Zimbabwe’s trade deficit ballooned 150% in first five months of the year as imports surged faster than the value of external trade, further blighting the country’s uncertain growth and high inflation outlook, the International Monetary Fund (IMF) has said quoting the Central Statistical Office.
The country’s balance of trade reached minus $300 million in April from about $120 million at the beginning of the year after imports notched $500 million against $200 million receipted from external shipments. In February last year when the country launched the multiple currency regime, the current account deficit — denoting the excess of imports over exports — was only $40 million.
Paradoxically, the decline in exports comes about as the country reports an improvement in capacity utilisation and industrial output in nearly every sector of the economy.
Kumbirayi Katsande, the immediate past president of the Confederation Zimbabwe Industries (CZI) thinks this merely reflects that local companies suddenly drifted from external markets to the local one, in response to “dollarisation”. Related numbers from the Reserve Bank of Zimbabwe exchange control data also showed that the value of export shipments in May fell below the level notched the previous month, with imports remaining flat.
Last year, Zimbabwe’s current account deficit rose to 30% of gross domestic product (GDP) from 24% in 2008 after exports declined 4% as the import bill jumped 22%, led by food imports, which surged 118%.
The IMF asserts this increase in import demand has been financed by growing domestic credit, higher humanitarian aid and some capital inflows. By extrapolation, the current account deficit ratio should have widened during the review period as the country continues to spend abroad a growing proportion of what it produces at home.
According to the multilateral finance institution, the country’s current account deficit would have been worse last year had it honoured its debts to foreign creditors, implying the country technically funded part of its deficit by not paying .
This arrear—driven growth in publicly—held external debt stock, coming against a lean capital account recording very little capital inflows from foreign investments or aid and other remittances from abroad, has also aggravated Zimbabwe’s overall balance of payment (BoP) position.
In the first three months of the year, the country’s publicly—held external debt stock is estimated to have risen to $5,7 billion from $4,5 billion at the beginning of 2009, against a GDP level below $5 million, largely due to interest on overdue payments.
Although Zimbabwe’s multi-currency regime cushions the country from exchange rate shocks since exchange rates are externally derived, the rate of growth in the trade deficit alone is alarming and will have long-run effects on domestic price stability, which could result in an extension of multiple currency regime beyond 2012.