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Zimbabwe Economic Outlook

Macroeconomic performance

The economy performed better than expected in 2018, expanding by an estimated 3.5%, driven by agriculture, supported by relatively peaceful elections. Cash shortages and the three-tier pricing system coupled with foreign exchange shortages continued to constrain the goods and factor markets.

The fiscal deficit was an estimated 10.7% of GDP in 2018, compared with 12.5% of GDP in 2017, financed mainly through domestic borrowing. In 2018, the government proposed addressing the unsustainable budget deficit with strong fiscal consolidation measures. The fiscal deficit was driven mainly by election- related spending, civil servant salary increases, and transfers to the agricultural sector. Total external debt was an estimated 45.3% of GDP in 2018, down from 53.8% in 2017. The current account deficit was an estimated 3.7% of GDP in 2018, with merchandise imports continuing to exceed exports, putting pressure on the supply of urgently needed foreign exchange and making it critical to diversify exports.

The country’s protracted fiscal imbalances have constrained development expenditure and social service provision, undermining poverty reduction efforts. Unemployment pressures have been mounting as employment opportunities continue to dwindle.

Tailwinds and headwinds

Policy-related macroeconomic instability; lack of funding, land tenure, and investment regulations; high input costs and outdated machinery; inefficient government bureaucracy; and inadequate infrastructure (particularly energy) remain key challenges for private sector development. The country has one of the most youthful populations, with the population ages 15–34 accounting for more than 36% of the total population. However, most young people remain unemployed and resort to informal trading.

Despite the headwinds, the economy is projected to grow by 4.2% in 2019 and 4.4% in 2020. The high and unsustainable debt-to-GDP ratio; the high fiscal deficit; the cash shortages, three-tier pricing, and limited availability of foreign exchange, which continue to constrict economic activity; and the persistent shortage of essential goods, including fuel and consumer goods, remain the major headwinds for any meaningful economic recovery. The agricultural sector and mining are expected to be the main drivers of growth, backed by increased public and private investment.

Zimbabwe has opportunities requiring minimal additional investment to realize medium-term growth targets. In particular, measures are needed to increase transparency in the mining sector, strengthen property rights, reduce expropriation concerns, control corruption, and liberalize the foreign exchange markets. Regeneration of civil society and a renewed engagement with political actors in a positive social contract will accelerate political reform. Given the vast natural resources, relatively good stock of public infrastructure, and comparatively skilled labor force, Zimbabwe has an opportunity to join existing supply chains in Africa through the Continental Free Trade Area. To take advantage of such opportunities, the government has adopted a three-pronged strategy based on agriculture, ecotourism as the green job generator, and special economic zones, growth pillars anchored on enhanced economic and political governance.

The government has adopted and is implementing prudent fiscal policy underpinned by adherence to fiscal rules, as enunciated in the Public Finance Management Act, together with financial rules. The reforms also reprioritize capital expenditure through commitment to increase the budget on capital expenditures from 16% of total budget expenditures in 2018 to over 25% in 2019 and 2020.