ZEPARU Economic Barometer Vol 21

Barometer

 

The 21st edition of the ZEPARU Economic Barometer reflects on the position of the key economic sectors in 2020. The key highlights in this issue include the following:

 

Global and regional economic developments: 

  • Due to the COVID-19 pandemic, it is expected that all economies across the world will register negative growth rates in 2020. This will negatively affect Zimbabwe given reduced demand for exports as well as reduced supplies of critical raw materials and well as consumables which the economy requires.
  • With the exception of gold, Zimbabwe will also be negatively affected by the suppression of mineral prices, which would reduce export given the dominance of minerals in the export basket. The  falling oil prices gave some fiscal space to government as it was able to raise taxes without significant impact on consumers
  • Zimbabwe’s inflation is now the highest in the region, hence disinflation policies should be the priority.

Major Zimbabwe economic developments:

  • Cumulative revenue collection for the first quarter of 2020 amounted to ZWL$13.88 billion, which was about 149.47 percent above target. This was mainly due to inflationary pressures than expansion of fiscal space
  • In the first quarter of 2016, government expenditure exceeded total government revenue, resulting in a budget deficit of US$159.81 million (19.775% of total government revenue). This budgetary deficit was mainly financed by loans and treasury bills from domestic sources.
  • On the 4th of May the government unveiled a ZWL$18 billion COVID-19 economic recovery and stimulus package, which accounts for an estimated 9 percent of GDP. However given that the country is currently in a high inflationary environment, there is risk that the funds will be wiped out by inflation and may not be sufficient to stimulate economic recovery.
  • The loan to deposit ratio for the banking sector, the liquidity ratio as well as the capital adequacy ratio show that Zimbabwe banks actually have the capacity to increase credit for economic expansion and growth.
  • The Zimbabwe Stock Change is no longer a preferred investment haven by foreign investors as reflected by a decline in the volume

Important economic sectors:

  • Government needs to incentivise tobacco farmers by increasing the foreign currency retention threshold. There is also need to strengthen current government efforts on climate change adaptation and agricultural financing to enhance food security
  • Gold and platinum demand is expected to increase amid COVID-19 induced risk hence the need to boost production. Gold is considered as a safe haven whereas investment in precious metals like platinum is more lucrative due to the increase in the global risk.
  • The COVID-19 pandemic induced difficulties in accessing imports implying that methods and mechanisms for import substitution should be the topical issue for manufacturers.
  • The Post COVID 19 Tourism Recovery Strategy should address a number of issues including destination accessibility among others if tourism is to recover and become a key economic driver;
  • Zimbabwe registered an improved balance of trade deficit as well as a current account surplus due to reduced imports, while exports remained subdued. This is not likely to be sustained.
  • Zimbabwe continues to be in debt distress with a huge and unsustainable external debt of about US$10.545 billion as at September 2019 of which about 60.35% of the debt is in arrears. The public sector debt to GDP ratio including legacy debt and farmers’ compensation is projected to be 101.6% in 2020, which is beyond the 70% debt threshold as espoused in the Public Debt Management Act and the Transitional Stabilisation Programme (TSP). The projected public debt is expected to be unsustainable even up to the year 2029 at 83.8% of GDP.

 Special feature: Strengthening citizen engagement in budget process a priority for Government

  • Zimbabwe has improved significantly in terms of transparency with respect to the budget process. The Open Budget Survey (OBS) 2019 report shows that Zimbabwe has an Open Budget Index of 49 (out of 100), having increased more than twofold from a score of 23 in 2017. The score of 49 is the highest ever score that Zimbabwe has attained since 2012, when Zimbabwe was first assessed. Zimbabwe’s score is also third after South Africa and Namibia in the SADC region, well above the Sub Saharan Africa average score of 32 and above the global average score of 45. 
  • The OBS also shows that Zimbabwe has a score of 33 with respect to public participation and an average score of about 42 with respect to oversight. This underlines that more efforts should be channelled in enhancing public participation.
  • Specifically, there is need to strengthen the structures and institutions for citizen engagement.  This can best be done by building the capacity of residents associations on budgets and budget processes to enable them to mobilise the public to participate in budgeting;
  • Treasury and parliament need to coordinate with residents association and use their structures in consultations to enhance their reach to citizens at the grassroots.

The Economic Barometer is ZEPARU's flagship quarterly publication that gives an overview of the status of the Zimbabwe economy at a given time.