ZEPARU Economic Barometer Vol 22


The 22nd edition of the ZEPARU Economic Barometer gives an overview of the status of the Zimbabwe economy within the context of the global and regional economic developments up to the end of the third quarter of 2020. The key highlights of this edition  include; 

Global and regional economic developments:

  • All the economies across the world are projected to register negative growth rates in 2020 due to the COVID-19 pandemic with economies recovering in 2021. Emerging markets like Mexico, Brazil and Russia being the hardest hit with anticipated economic decline of -10.5%, -9.1% and -6.6% respectively in 2020.
  • Growth in Sub-Saharan Africa is expected to fall from 3.1% in 2019 to -3.2% in 2020 with Nigeria and South Africa expected to recover from -5.4% to 2.6% and from -8.0% to 3.5% respectively from 2020 to 2021.
  • Crude oil price fell by 34.5% from US$61.76/barrel between January and September in 2019 to US$40.46/barrel during same period in 2020.
  • Decline in maize price by 8.5% from US$171.16/metric tonne in the first nine months of 2019 to US$156.64/metric tonne in the same period in 2020 brought relief on the import bill whereas firming of wheat and soya bean prices meant further strain on limited supplies of foreign currency.
  • Gold and platinum are used as a safe haven during the COVID-19 pandemic. However, the use of platinum for investment and hedging is not as strong as gold as evidenced by a surge in the price of gold by 25.7% from an average of US$1362.81/ounce in the first nine months of 2019 to US$1713.36/ounce in the same period in 2020 whereas the price of platinum was fluctuating.
  • Zimbabwe has the highest inflation rate in Africa at 761% in August 2020, a 24.5 percentage points decline from 785.6% recorded in May 2020. High inflation is explained by indexing of prices to the parallel market exchange rates. Measures introduced by the central bank such as the introduction of foreign currency auction system and restrictions on the operations of mobile money platforms slightly reduced inflation.
  • Zimbabwe Stock Exchange (ZSE) industrial index was the best performing among selected regional stock exchanges having gained 368.7% since the beginning of the year, buoyed by high inflation and negative economic outlook which left the local bourse as the best alternative investment option.

Major Zimbabwe economic developments:

  • Cumulative revenue collection for the first seven months of 2020 which amounted to ZWL$45.922 billion, was about 14.3% above the target mainly driven by inflationary pressures and not expansion in the revenue base.
  • Government expenditure exceeded total government revenue, resulting in a budget deficit of ZWL$549.96 million (1.2% of total government revenue). This budgetary deficit was mainly financed by changes in government deposits from domestic sources.
  • The Total Consumption Poverty Line for an average of five persons per household stood at ZWL$17, 244.00 in August 2020 an increase of 10.7% compared to that of July 2020. This means an average household requires ZWL$ 17,244 to purchase food and non-food items for them not to be deemed poor.
  • Low savings and time deposits of ZWL$4.01 billion constituted 4% of total money supply as at end of June 2020. This implies low savings-investment activity in the economy and lack of preference to saving-investing through the banking system due to inflation induced negative real interest rates.
  • High growth of money supply by 575.9% from ZWL$14.77 billion to ZWL$99.82 billion over the period June 2019 to June 2020 with the bulk of the money supply stock in the form of transferable deposits. About 61.6% of transferable deposits is in foreign currency accounts (FCAs) which shows high levels of dollarization in the economy.
  • Excess reserves kept with the central bank implies that banks are not keen to lend, partly because of the COVID-19 pandemic which increases the chances of default and negative real interest rates.        
  • Decline in the volume and value of tobacco seasonal sales by 28% as at 30 September 2020 to 183.3 million kilogrammes compared to 254.5 million kilogrammes realised same period in 2019 due to a long dry spell and late rains, erratic supply of energy to the crop under irrigation, as well as COVID-19 lockdown restrictions. However, the average price increased to US$2.50 from US$2.03 during the same period. Expediting irrigation development programmes and adoption of green energy such as solar is critical to improve yields.
  • The Global Compensation Agreement signed by the Government of Zimbabwe on 29 July 2020 to compensate the former white commercial farmers US$3.5 billion is in compliance with Section 71(2) of the Constitution of Zimbabwe which calls for need to respect property rights in order to rebuild investor confidence.
  • Gold production for the first five months of the year registered a dip with about 9.78 tonnes produced in 2020, a 15.6% decline compared to about 11,57 tonnes produced same period in 2019. Platinum registered a 5% increase in production from about 5.9 tonnes in the first five months of 2019 to about 6.18 tonnes same period in 2020, due to increased production at Unki mine.
  • Gold sector was facing problems even before the imposition of lockdown restrictions on 30 March 2020. In the outlook, platinum group metals’ demand shocks caused by COVID-19 are likely to be considerable given strong recovery in China’s platinum automotive demand and the fact that platinum is used as a safe haven together with gold.
  • Noticeable improvement in imports of raw materials over the two-month period July and August 2020, in comparison to 2019 and even prior periods due to easy access to foreign currency on the auction market. Significant increase registered in rubber and related products and glass and plastic raw materials which increased by 35% and 20% respectively. This brings expectations of improved manufacturing sector output in 2020 hence the sustainability of the auction system is key in ensuring manufacturing sector revival is critical.
  • Reopening of the tourism sector after five months of closure between April and August 2020 following the COVID-19 related lockdowns. The sector is one of the hardest hit by the COVID-19 lock downs and is projected to contract by -7.4% in 2020. A waiver of the value added tax payable by domestic tourists on accommodation and other tourism related services granted by the Government of Zimbabwe to stimulate growth of the sector. However, the sector still faces stiff competition from the digital economy that has seen introduction of substitutes such as online meetings.
  • Improvement in trade balance due to increase in imports by about 3.8% to US$2.54 billion in between January and August 2020 compared to pronounced decline in imports by 6.3% to US$2.96 billion during the same period. This signifies a decline in resource outflows to finance excess of imports over exports although there is still over-reliance on the foreign markets for goods and services demonstrating the need for more efforts towards import substitution. Noticeable shock in April 2020 when the lockdown restrictions of COVID-19 was at its most strict level, with the shock dying down between May and June 2020.
  • External debt stood at US$8.094 billion as at end December 2019, of which about 73% of the debt is in arrears which shows that the country is in a debt trap. China, the dominant creditor under the Non-Paris Club constitutes about 28.1% of the total external debt (US$1.395 billion) compared to Paris Club members such as Germany (19.1%), France (12.7%), Japan (8%), United Kingdom (7.6%), and United States of America (5.7%).
  • Domestic debt increased by about 43.2% to ZWL$12.89 billion in May 2020, from ZWL$9 billion in December 2019 due to the adoption of the legacy obligations.

 Special feature: The foreign exchange auction market developments and implications

  • Noticeable gradual stabilisation of the ZWL$/US$ exchange rate following the introduction of the foreign exchange auction market. Exclusion of SMEs due to a high minimum amount requirement of US$50,000 led to a second foreign currency auction for SMEs announced on the 4th of August 2020 with the first auction held on the 6th of August 2020.
  • A total of US$274.3 million has been allocated cumulatively through the auction system held on the 6th of October 2020, with about 3.4% allocated to SMEs. The auction rate has stabilised since the 22nd of September 2020 with the rate now obtaining at around US$1/ZWL$81. Sustainability of the auction system hinges on the ability of the RBZ to continue to take foreign currency from the exporters hence decentralisation of the auction system through gradual reduction of the central bank’s role as the seller at the auction is critical. This reduces arbitrage opportunities that can be enjoyed by active participants at both the parallel market and the auction system.
  • Continued premiums at the parallel market demonstrate that the price set by the participating firms may not be reflective of the actual supply and demand dynamics.
  • The informal sector players only sell foreign currency to the parallel market due to higher returns at the parallel market.
  • The use of dual pricing in a de facto dollarization make as buyers prefer using the US dollar.

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