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Economy exposed to global recession

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Global investment bank Renaissance Capital has revised down the country’s economic growth forecast for 2011 to 7% due to a constrained fiscal space and low foreign currency reserves.

Renaissance Capital projected the economy to grow by 6,6% next year.

Finance minister Tendai Biti last month projected the economy to grow by between 7,8 to 9% next year compared to the projected 9,3% this year.

It said low foreign currency reserves
of less than a month of import cover, a highly constrained fiscal space, public debt and a wide current account deficit implies Zimbabwe has very limited buffers to withstand a potential global recession in 2012.

“Softer commodity prices will, in our view, subdue growth in mining, but agriculture is likely to continue to exhibit robust growth in 2012, as long as good rains continue,” Renaissance Capital said.

“Zimbabwe is one of the few sub-saharan Africa economies entering the global economic downturn with a moderately stronger economy than it had in 2008.

“When the 2008 global crisis hit, Zimbabwe’s economy was in its seventh year of decline. However, the global crisis compounded the decline — Zimbabwe’s economy contracted 14,8% in 2008.”

The research firm said the country’s economy was being spurred by strong recoveries in the agriculture and mining sectors.

It said foreign currency reserves had increased, but remained low leaving the economy vulnerable to external shocks.

The government’s adoption of a cash budget system has allowed for the containment of the fiscal deficit.
“However, fiscal space is severely constrained by the lack of access to external financing (due to the government’s massive debt) and the absence of donor support.

“The current account deficit remains wide owing to a high dependence on imports, partly due to the decline of the manufacturing sector,” Renaissance Capital said.

“However, sub-saharan Africa’s buffers are not as strong as they were in 2008, implying that some in the region may be more vulnerable going into a recession, although still strongly outperforming developed markets. The one mitigating factor is that this recession could be much milder than that of 2008/2009.”

Biti in his Budget Strategy Paper said agriculture and mining would remain the major drivers of growth.
He said the country’s economic growth was vulnerable to a dip in commodity prices, as high gold and platinum prices contributed significantly to the country’s revenues.

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