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Zimbabwe Economic Outlook
Macroeconomic performance and outlook
GDP contracted by 12.8% in 2019 due to poor performance in mining, tourism, and agriculture. Foreign currency and electricity shortages affected mining and tourism. Agriculture shrank about 15.8% due to cyclone Idai in March 2019, prolonged drought, livestock diseases, and currency shortages reducing the availability of inputs. Despite a global mineral price recovery, production in Zimbabwe dropped below 2018 levels. Austerity measures through the Transitional Stabilization Program 2018–20 and attendant monetary reforms constricted economic activity. Any 2020–21 recovery would depend on quick turnaround in the real sector. In the medium term, however, fiscal and monetary reforms are expected to stabilize the economy and begin to generate positive results.
Following the February 2019 unpegging of the exchange rate from the US dollar and the June 2019 introduction of the new currency—the Zimbabwe dollar —the exchange rate deteriorated from 2.5 Zimbabwe dollars per US dollar in February 2019 to 20 Zimbabwe dollars per US dollar in November 2019. Inflation spiked from single digits in 2018 to more than 200% in November 2019, occasioned largely by the exchange rate movements and by shortages of basic goods, including fuel, foodstuffs, and electricity. The current account deficit, at 2.2% of GDP in 2019, put pressure on urgently needed foreign exchange and made enhancing exports critical. The budget deficit narrowed from 9.9% of GDP in 2017 to 5.6% in 2018 and 6.0% in 2019, mainly due to government measures, which include frozen public sector employment, reduced investment and consumption spending, better revenue mobilization, and restrictions on government borrowing and the issue of government securities.
Public debt remains above the statutory target of 70% of GDP. In June 2019, external debt constituted 87% of the debt, estimated at $8 billion, of which about $5.9 billion (73.75%) was accumulated arrears. Multilateral institutions are owed $2.6 billion (31.25% of external debt). Bilateral debt amounted to $5.1 billion, with Paris Club creditors owed $3.5 billion and others owed $1.6 billion.
More than 60% of the population falls below the poverty line, while income inequality remains high. Employment opportunities continue to dwindle. About 2 million people in the rural areas were food insecure in April–June 2019—expected to rise to 5.5 million in January–March 2020—with 2.0 million more affected in urban areas.
Tailwinds and headwinds
The economy is expected to recover with GDP growth of 4.6% in 2020 and 5.6% in 2021 if corrective measures are taken, especially to restore macroeconomic stability. Recovery in the agriculture, mining, and tourism sectors will be backed by increased public and private investments. The regeneration of civil society and engagement with political actors in a positive social contract will accelerate reforms. Vast natural resources, fairly good public infrastructure, and a skilled labor force give Zimbabwe an opportunity to join supply chains in Africa and increase trade in the African Continental Free Trade Area.
High and unsustainable debt, high fiscal deficits, cash shortages, limited foreign exchange, and persistent shortages of essential goods are hampering meaningful economic recovery. Development spending and social service provision continue to be constrained. As the Zimbabwe dollar depreciates, local creditors lose the value of both their loans and payments on goods and services supplied to government, and external debt service becomes more expensive. The economy’s downward spiral has fueled unemployment and poverty.
Heavy debt servicing raises sustainability concerns, with implications for macroeconomic stability and development. Lack of funding, high input costs, outdated machinery, inadequate infrastructure (particularly for energy), limited progress on land reform, and relaxing investment regulations are key challenges for private sector development. The country needs to invest $3.4 billion a year for 10 years for the modest recovery of its infrastructure.