GDP growth slowed dramatically to just 1.1% last year, perpetuating the drain of human capital escaping the regime, high unemployment and uncompetitive salaries. The combination of political risks deterring investment spending and inflows, working in concert with adverse meteorological conditions, the drought and erratic rainfall undermining agricultural output, water supplies and hydroelectricity production, are all deepening a crisis that is manifestly larger due to the slump in commodity prices, persistent deflation, rampant poverty and slow reforms stemming from a policy regime geared to top-down political prerogatives.
Having controlled the debilitating effects of hyperinflation that emerged following the seizure of farm-holdings in the late 1990s that peaked around six years ago, the country is now experiencing persistent deflation (price falls) averaging around 2.2% on an annual basis each month stemming from depressed commodity prices and an appreciating US dollar.
With the economy struggling to match expectations, prospects are fading of attaining the IMF’s 2.7% and 3.5% growth predictions for 2016 and 2017, and faced with a cash crisis the authorities have imposed restrictions on offshoring and daily cash withdrawals, they are pressing ahead with plans to issue domestic bonds, and switching from the dollar to the South African Rand as the preferred unit of value. The rand is a more suitable proposition for mitigating currency risk, on the basis of bilateral trade flows and the huge numbers of Zimbabwean migrant workers plying their trade in their wealthier neighboring state, but the debate over whether to alter the multi-currency arrangement or dispense with it entirely is continuing to rattle the markets.
The IMF meanwhile welcomes the re-engagement of Zimbabwean policymakers, but is imploring the state to clear all outstanding arrears before granting the sovereign access to international markets, which will hinge on political developments and how the plans proceed for repaying the $1.8 billion owed to its principal multilateral creditors, the African Development Bank, IMF and World Bank. On that score the firming of prices for chrome following the lifting of the embargo on exports last year is a welcome diversion caused by the reduction in global stocks and the mini-revival of the rand.
Zimbabwe also enjoyed higher earnings on its horticulture exports to the EU in 2015, but exports in total declined by around 15% and the government taking full control of the diamond mines represents another backward step. Considering the nation’s huge import dependency, the current account deficit is chronically high, and is likely to exceed 15% of GDP again this year, highlighting the risk of payment problems as falling reserves undermined by limited external inflows put a cash squeeze on the banks and the corporate sector.
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