BY TATIRA ZWINOIRA
ZIMBABWE’s economy will contract by 20% in US dollar terms to US$20 billion by year end due to worsening economic conditions, new estimates released by Treasury show.
In his “State of the Economy” address presented to Parliament on Wednesday, Finance minister Mthuli Ncube said following the adoption of the RTGS dollar in February as the currency of reference, his ministry rebased the GDP value accordingly to RTGS$70,3 billion for 2019 from RTGS$40 billion last year.
Using the official exchange rate from the central bank of US$1:RTGS$3,52 this translates to nearly US$20 billion down from government’s US$25 billion GDP value for Zimbabwe last year.
“However, in 2019 Madam Speaker, GDP is expected to be way down due to the impact of the El-Nino-induced drought, the devastating destruction of Cyclone Idai, foreign currency shortages and constrained spending being imposed by fiscal reforms. We have seen that the impact of the drought is already impacting power production and I think we are beginning to see some of the outages being caused by the low water levels on Kariba impacting our hydropower Madam Speaker,” Ncube said.
“When we recalibrated our GDP because of the change in the structure of the economy, our GDP figure came out at about an average of US$25 billion for 2018. Because now we are recalibrating using the domestic currency, we have gone back to adjust that and the adjustment result leaves us with a GDP of $42,8 billion (US$12,15 billion) as GDP for 2018 in RTGS dollars. Our projection for GDP in 2019 in RTGS dollars is $70,3 billion RTGS dollars.”
On top of the economic challenges mentioned by Ncube, Zimbabwe is also facing headwinds from stagnant and devaluating salaries and hyperinflation fueled by the parallel market exchange rates, leading to wanton prices increases.
On Wednesday, the country’s statistics body Zimstat reported that annual inflation rate grew nine percentage points to 75,86% for April from March. However, using Zimstat’s old matrix for determining the annual inflation rate, the inflation rate for April would have been 175,326%.
As of May 10, renowned American economist Steve Hanke’s put Zimbabwe’s annual inflation rate at 238%.
Since October 2018, government has implemented a plethora of austerity, fiscal and monetary measures to fix the economy.
Among them, the ones to impact the economy the most are the introduction of an unbacked local currency (RTGS dollars) and a 2% transfer tax as well as an increase in fuel taxes by an average of 324% in January.
According to a report by United Nations experts last month, they reported that government’s policies were, in fact, worsening the country’s economic crisis, causing immense hardship for the poor.
“The government is pushing people further into poverty. We are not aware of any government measures to provide even minimal safety nets for those who are already living on an economic cliff-edge and who will suffer the most from these regressive policies,” the report found.
Nearly two weeks ago USAID chief officer of humanitarian assistance and resilience in Zimbabwe, Jason Taylor said the deterioration of the economy only followed fiscal and monetary policies.
Economist John Robertson said Ncube had to be responsible about stating GDP figures and believed a lot of the figures were not a true reflection of the economy.
“Something else you may want to maybe include in your article is that people who are getting higher wages will find themselves in a higher tax bracket now. Now, are they (government) going to change the tax bracket so that we don’t get extra taxes,” he said.
“If they do not change the tax brackets in the layout, people are going to pay much higher taxes than they did before because they will all be in apparently higher income groups and when their incomes are not higher it is simply measured in smaller dollars.”
Despite this, Ncube says the recalibrated nominal GDP facilitated the development of updated 2019 fiscal framework with total expenditures of $12,2 billion RTGS dollars (US$3,5 billion) against anticipated revenue collections of $9,3 billion RTGS dollars (US$2,61 billion).