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Debt overhang, Covid-19 to stifle Zim: IMF



DESPITE a bullish outlook by the authorities in Harare, the International Monetary Fund (IMF) has maintained a conservative economic growth projection on Zimbabwe due to limited access to concessionary funding.

Zimbabwe, which fell into arrears with major international financial institutions at the turn of the century, is currently relying on domestic resources and grants to stimulate growth. But Finance minister Mthuli Ncube remains bullish that the southern African nation will achieve a robust growth of 7.4%.

Abebe Aemro Selassie, the director of the African department at the IMF, told journalists during an April 2021 Virtual Spring Meetings Regional Economic Outlook Press Briefing on sub-Saharan Africa that the outbreak of Covid-19 and a huge debt overhang would stifle Zimbabwe’s growth prospects.

“Starting with growth, an important reason why we are more conservative in our growth projections is, of course, exactly the point you made that Zimbabwe, unfortunately, continues to have very limited access to external concessional support,” Selassie said.

“And of course, domestically also, the government’s ability to finance itself — by issuing bonds or borrowing from the banking system — is very constrained given the monetary and exchange rate framework that the country has a susceptibility to inflation. So, we feel that with the limited fiscal support, with the toll of the pandemic on economies, on peoples’ lives, livelihoods, we feel that the robust growth recovery this year will be constrained to the order of 3%. But we — this is a point we’d be very happy to be proven wrong on — if growth is higher, we would be very happy.”

The Zimbabwean dollar now trades at 84 to the US dollar on the official market after being pegged at parity just two years ago.

The gap between the official exchange rate and parallel market has widened by 36%, with a US dollar selling for up to 120 Zimbabwean dollars on the parallel market. Commenting on the government’s ambitious plan to lower inflation to single-digit levels in the short to medium term, Selassie said it was too early for Zimbabwe to come out of the woods.

“Turning to inflation, again, it really comes back to the same factors. We do see inflation coming down from the very high levels it was in during 2019/2020 on account of the droughts that Zimbabwe and Zambia had suffered from. That said, given the absence of new inflows, we do see a constrained environment and much more constrained evidence for supply of goods and services — so we expect inflation to be a bit higher,” he said.

Ncube is sticking to Treasury’s economic growth estimate of 7.4%, even after President Emmerson Mnangagwa said the projection would have to be lowered. In contrast with the optimistic outlook on growth, Zimbabwe still faces a 241% inflation rate and foreign-currency shortages. The disposable incomes of most workers who earn in local currency have been wiped out.

“Zimbabwe is coming through this recovery phase quite well,” Ncube told Bloomberg TV this week. “Mining remains strong. Our infrastructure investment programme is also quite strong. There’s really a recovery across the board, except the tourism sector.”

Mnangagwa said at the weekend Treasury would “have to revise” its projection in view of expectations that new waves of coronavirus infections will curtail economic output.

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