THE International Monetary Fund (IMF) has projected Zimbabwe’s economy to contract for a second straight year by 7,4% for 2020, largely because of the COVID-19 pandemic.
BY TATIRA ZWINOIRA
Last year, IMF recorded the economy contracting by 8,3% as the country endured its biggest crisis in a decade, with shortages of cash, medicines and rolling power cuts.
According to the IMF’s recent 2019 Staff-Monitored Programme Article IV Consultations, the COVID-19 pandemic has adversely impacted the economic outlook for Zimbabwe which requires additional health-related support.
“The sharp downward revision largely reflects the fallout from the spread of COVID-19 and lower-than-expected commodity prices,” said IMF in its new April 2020 Sub-Saharan Africa Regional Outlook released during the ongoing IMF spring meetings.
“In addition, idiosyncratic factors, such as continued structural constraints (South Africa), policy adjustment (Ethiopia), and climate and other natural shocks (such as the locust invasion in eastern Africa) have also contributed to the downward revisions.”
IMF said as of April 9, more than 6 200 cases of COVID-19 had been confirmed across 43 countries in the region, with South Africa, Cameroon, and Burkina Faso being the most affected.
South Africa is Zimbabwe’s largest trading partner, tourist source market and is a major investor in the neighbouring country.
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In 2019, South Africa accounted for 36% of raw materials imported and 15% for Zimbabwe’s exports, according to the Confederation of Zimbabwe Industries (CZI).
Following a recent survey, CZI found that the COVID-19 pandemic is affecting 88% of local companies as they are failing to access both source and export markets.
Recently, the investment promotion organisation, ZimTrade, found intervention measures put in place by South Africa in combating the spread of coronavirus will be felt much by Zimbabwean exporters since it takes about 49% of Zimbabwe’s total exports.
“This situation in Africa is almost the same across the world where Zimbabwean exports will likely be affected by restricted movements, ban of air travel or grounding of ships, which transport the bulk of the country’s exports,” ZimTrade said.
IMF found that the region would also suffer several external shocks — including trade and tighter global financial conditions — with sub-Saharan African countries exposed to different degrees.
“On trade, a sharp growth slowdown among key trading partners reduces external demand, while disruptions of supply chains lower the availability of imported goods, potentially adding inflation pressure,” IMF said.
“In addition, the sharp tightening of global financial conditions reduces investment flows to the region and hampers its ability to finance spending needs to deal with the health crisis and support growth,” IMF said.
It added: “This may result in either a cut in government spending, a build-up in arrears, or an increase in government borrowing in local markets, with attendant consequences on domestic credit and growth.”
China’s fight against COVID-19 is also poised to hurt Zimbabwe as it is the southern African nation’s second biggest trading partner, having accounted for US$974 million and US$368 million of exports and imports last year respectively.
The major products that Zimbabwe imports from China include machinery, mechanical appliances, boilers, electrical machinery, equipment, vehicles, chemical products, rubber, and plastics.
Apart from COVID-19 pressuring the Zimbabwe economy, the country is already dealing with a number of macroeconomic shocks as a result of worsening climate change, low foreign investment, corruption, debt, a weak Zimbabwe dollar and rising inflation, which rose to a post-dollarisation high of 676% in March.
The devaluing Zimdollar has led to hyperinflation.