Harare, Zimbabwe (News of the South)-Zimbabwe’s short term macro-economic status will be characterised by forex shortages likely to persist amidst flat export earnings and soft diaspora remittances, according to an economic analysis.
IH Zimbabwe says the country’s economy fell behind Sub-Saharan African (SSA) peers in 2016 with the IMF estimating a contraction of 0.3% vs. SSA peers who recorded average growth of 1.6%.
Interestingly, at 1.6% economic growth, sub-Saharan Africa came in at its lowest level in more than 20 years weighed down by lower commodity prices and generally a less supportive global economic environment.
“In Zimbabwe, key macro-growth sectors, agriculture and mining, recorded mixed performances with agriculture contracting 3.7% due to the impact of the El Nino and limited funding for inputs, whilst mining provided the boon, up 6.9% y/y, lifted by higher gold output (+8.9% to 21.5 tonnes)’.
The Government expects the economy to turn around in 2017 and show modest growth led by an anticipated recovery in agriculture due to expected normal to above normal rainfall and significantly improved funding (command agriculture program $500mn).
Mining is expected grow marginally against steady output in precious metals and a recovery in chrome prices.
To this end, the MoF has forecast a growth rate of 1.7% for 2017.
The World Bank’s expectations are similar to those of the MoF at 1.7% while IMF, has however forecasted a further contraction in the economy of 2.5%.
“Our base case view is that GDP will grow a marginal 0.4% in 2017 – whilst we anticipate an improved performance in agriculture, we are concerned with the La Nina effect which has resulted in excessive rainfall and leaching, we believe this poses downside risk to expected yields”.
“In the mining sector we note that precious metal prices are forecast to decline in 2017 as the USD strengthens amidst a forecast rise in interest rates which causes us to be cautious in our expectations”.
“We expect the current account deficit to remain subdued at current levels as forex shortages and reduced demand cap imports whilst exports remain static”.
IH says liquidity will remain generally difficult with some visible improvement most likely coming through in March/April/May during tobacco sales and then tapering off thereafter.
IH says enhanced discipline will be critical to creating fiscal space.
“Cumulative expenditures for January to October 2016 amounted to $3.84bn, against a target of $3.32bn resulting in a variance of $520mn”.
“This was as a result of unbudgeted expenditures related to the importation of grain for vulnerable communities due to the El Nino induced drought ($252.5mn), payment of arrears of December 2015 salaries ($119.4mn), expenditure related to the servicing of debts ($100.9mn) together with bonus payments for 2015 ($177.8mn)”.
The payment of salary arrears and 2015 bonus put further pressure on employment costs, which consumed 91% of total revenues at $2.63bn, leaving very little fiscal space for capital projects.
“Wage rationalisation and enhanced discipline is now more critical than ever, particularly with circa 50% of the Treasury Bills in issue falling due in the next 12-18 months”.
However, with elections on the horizon (March 2018) and government likely to enter into campaign mode , it is difficult to see government successfully capping public expenditure particularly if that involves making active decisions to downsize or rationalise civil servant wages (civil servants form approx. 50% of the formally employed population of the country).
Additional constraints will be the 2016 bonus payments still to be made as well as costs related to the elections.
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