Finance minister Tendai Biti is convinced the size of Zimbabwe’s economy is grossly understated and expects the country’s nominal gross domestic product (GDP) to hit $8 billion next year, three years ahead of time.
The GDP level, the prime measure of economic value created in a given financial period, usually a quarter, half-year or 12 months, was not expected until 2015, in terms of the country’s draft Medium Term Plan scheduled for launch this year.
The surprise economic re-rating, the first upbeat signal in 20 months, takes the economy closer to Zimbabwe’s peak nominal GDP of nearly $10 billion in 1997.
Justifying his claim, Biti identified four indicators, the economy’s insatiable appetite for credit; the existence of a large informal sector excluded from official statistics, the level of industrialisation and diversification of the economy and rate at which the economy and direct taxes have rebounded from a low base in February last year.
“Our GDP is understated,” Biti said. “Our bank deposits continue to grow at $82 million per month, from $1,3 billion in January to $2,3 billion at the end of September. $1,42 billion of this has been loaned out, about 62% of the deposits.
“But the appetite for credit and the crisis of capital in the economy show that perhaps the size of the economy is understated.”
Imara Asset Management Zimbabwe CEO John Legat made the same assertion in August when he questioned the International Monetary Fund (IMF)’s report that Zimbabwe’s economy was just over $5 billion.
“We are not sure as to where they got their figures from but we assume it is based on the Central Statistical Offrice’s (now Zimstat) data and their own estimates,” Legat said.
“They do however point out that ‘Data have serious shortcomings that significantly hamper surveillance due to (Zimstat) capacity constraints.’.”
Using both micro- and macroeconomic analyses, Legat drew comparisons between Zimbabwe and Zambia, a $14 billion economy, since the two have a similar-sized population and share more or less similar macroeconomic conditions, land-locked status, deposit base and commodity-dependence.
Legat noted that Zimbabwe’s mineral exports were decoupling at a faster rate than Zambia’s, while the investments, revenue and EBTDA of Zimbabwe’s largest beverages maker and telecoms operator were many times the size of their Zambian counterparts.
Like Biti, he also observed that revenues from direct taxes such as value-added tax (Vat), Paye and corporate tax, which are a function of economic growth, have stayed way above target since the beginning of the year, reflecting the robust recovery of the economy.
BancABC group economist James Wadi also came to the same conclusion after comparing the tax regime and GDP per capita movements of Zambia and Zimbabwe on a 12-month moving average.
“The tax-free thresholds of Zambia and Zimbabwe are more or less the same, but the GDP per capita gap between the two countries is widening,” Wadi said.
“Zambia’s GDP per capita is now over $1 000, but Zimbabwe’s will only be around $600 based on the new estimates. That shows that there is something wrong with the way we’re calculating our GDP.”
While presenting the 2011 Budget statement in Parliament on Thursday, Biti remarked that he could have “got away with a $3,5 billion Budget”, but decided to be “extremely cautious” with a $2,7 billion Budget 100% funded by tax revenues.
He said the Budget did not incorporate the contribution of diamonds.