THE African Development Bank (AfDB) sees Zimbabwe’s annual inflation for 2022 closing at 43% at a time prices have been soaring against the backdrop of a weakening domestic currency, among other economic headwinds.
Zimbabwe’s year-on-year inflation has continued to jump in quantum leaps, reaching three-digit figures in May amid warnings that the domestic currency may soon be jettisoned for the United States dollar due to unrelenting inflationary pressures.
Official figures show that year-on-year inflation for May climbed to 131.7% from 96.4% in April.
According to the regional development finance lender, Zimbabwe’s economic growth accelerated to an estimated 6.3% in 2021 from a 5.3% contraction in 2020, supported by a bumper harvest, expanding agriculture by 36.2% in 2021, up from 4.2% growth in 2020.
The weakening domestic currency has resulted in cost pressures despite the easing of inflation from 659.4% in September 2020 to 60.7% per annum recorded in December 2021.
As inflation continues galloping and confidence in the Zimbabwe dollar wanes, two prominent local economists have warned that the domestic currency may soon be ditched for hard currency.
“Per capita GDP likewise grew, by 4.9% in 2021 from a contraction of 6.7% in 2020. A mix of improved revenue mobilisation and expenditure restraint contributed to a positive fiscal balance of 0.6% of GDP in 2021,” the AfDB said in its 2022 Economic Outlook for Africa.
“Inflation slumped to 98.5% in 2021 from 557.3% 2020, reflecting a fall in food price inflation aided by improved food supply. The official exchange rate was Z$108/US$1 in December 2021 and was overvalued as reflected in a 67% disparity with the parallel rate of Z$180/US$1.
“Growth is projected to average 3.5% in 2022 and 3.2% in 2023, driven by continued favourable agricultural performance and improved macro-economic stability. In the same period, inflation could drop to 85% and 43% on the back of stability in food prices and exchange rate stability.”
Zimbabwe is in debt distress, with total debt of US$13.7 billion, of which US$13.2 billion is external. The current account balance remained positive on account of reduced food imports.
Financial sector performance was satisfactory in 2021, with non-performing loans at 3.5% against a benchmark of 5%, while the capital-adequacy ratio was 32%, above the 12% requirement, in June 2021.
The fiscal deficit is forecast to narrow to 0.2% of GDP given continued fiscal discipline. The current account balance will remain positive largely because of reduced food imports as domestic production improves, as well as increased export earnings stemming from improved commodity prices.