BY FIDELITY MHLANGA
THE United Nations(UN) has painted a bleak picture of Zimbabwe’s economic outlook saying the economy shrank 5,5% last year and is envisaged to contract by another 2,5% in 2020.
The UN’s annual report, the World Economic Situation and Prospects 2020, forecasts a modest acceleration in global growth, reaching 2,5% in 2020 and 2,7% in 2021.
“The economy of Zimbabwe is experiencing a severe crisis amid foreign currency shortages, elevated public debt and uncontrolled inflation. In a number of countries, however — particularly those with severe macroeconomic imbalances — inflation is elevated In Zimbabwe, economic and financial conditions have deteriorated substantially, prompting the return of hyperinflation,” reads the UN report.
Authorities in Zimbabwe are, however, anticipating a 3% economic growth in 2020.
According to the global body there is also an elevated risk that difficult economic conditions in some countries in southern Africa could become more entrenched, leading to prolonged recessions in Angola, Namibia and Zimbabwe.
The UN said political conflicts, social instability and security concerns are major downside risks across the continent and can affect the short-term outlook in many countries in the region
The 236-page report, produced by the UN Department of Economic and Social Affairs, the UN Conference on Trade and Development and the UN’s five regional economic commissions, chronicles that public debt levels exceed 100% of gross domestic product in countries such as Cape Verde, the Congo, Djibouti, Eritrea, Mozambique and Sudan. It also revealed that some economies with lower debt ratios, including Zimbabwe, face increasing repayment burdens.
Economist Persistence Gwanyanya said a contraction of 5,5% last year could be conservative as the economy underwent serious challenges in the past year.
“I am not so sure how the UN arrived at its projections, but I am pretty confident the economy contracted in 2019. I actually think the 5,5% economic contraction is on the conservative side as the government, which is normally unrealistically conservative is even estimating a decline of 6,5% in 2019.”
“Government’s initial projection of 3% reflects the effects of unforeseen eventualities namely the devastating effects of drought and Cyclone ldai. Importantly, the estimated contraction reflects the impact of monetary reforms, which I am now convinced our policymakers did not anticipate. The mere fact that we did a supplementary budget of $10,5 billion in July 2019, which was even higher than the initial budget of US$8,2 billion bears testimony to my assertion of lack of deeper understanding of the true nature of our country’s economic challenges and, importantly, the effects of monetary reforms,” Gwanyanya said.
He added that a contraction of 2,5% was overambitious due to the fact that the economy is still wallowing in great distress.
“We still see the projected 2,5% as overambitious in light of the number of downside risks to growth this year. The 2019/20 agriculture season is not promising to be good due to late and erratic rains as well as poor preparedness on behalf of farmers who were previously supported by Command Agriculture programme, which was transformed into Smart Agriculture at a time prices of agricultural inputs shot up due to the effects of monetary reforms.
“All these mean greater need for the country to import food to support the vulnerable groups of the population at a time the strategic grain reserve of the country is depleting. The increasing trend towards dedollarisation is going to take a heavy toll on revenue performance due to a sharp decrease in the 2% intermediated money transfer tax. Also worrying is the political impasse which will certainly weigh down on economic performance,” said Gwanyanya.
Economist John Robertson pointed out that a prediction of a more than 10% contraction would be realistic because nothing has changed to transform the country’s economic fortunes.
“Projections of more than 10% are realistic for 2020 because of power, water, fuel shortages that have not changed. Investor confidence is till at its lowest. Government has not done much to improve investor confidence. We need to work very hard to overcome the handicap of not keeping promises. If promises are not kept, investors lose confidence. We are in for a difficult year. Government should fulfil its promises on improving the ease of doing business,” Robertson said.
United Kingdom-domiciled global business intelligence entity, the Economist Intelligence Unit (EIU), early this month projected the economy to shrink by 13% this year.
Zimbabwe featured among the worst performers, coming second to Venezuela whose economy is envisaged to contract by 20,5% according to the EIU report released early this month.