FITCH Solutions, a United Kingdom-based research firm, sees Zimbabwe’s economy registering a modest 2% growth this year compared to a government forecast of 4.6% due to high interest rates and external factors.
Experts say lower-than-expected agricultural output and a depressed manufacturing sector will weigh down on economic growth prospects as the southern African nation continues to feel external shocks from the Russia’s invasion of Ukraine.
Finance minister Mthuli Ncube recently revised Zimbabwe’s economic growth projections to 4.6% from 5.5% despite maintaining a bullish outlook in the mining sector, the country’s key economic driver, accounting for more than half of export receipts.
In its latest research note, Fitch says the economic growth will quicken in the coming year, driven by government consumption ahead of the general elections.
“At Fitch Solutions we forecast real GDP growth of 2.0% in Zimbabwe in 2022, down from an estimated 4.6% in 2021, and a pre-pandemic 10-year average of 5.9%,” the research firm says.
“Global supply-chain disruptions following Russia’s invasion of Ukraine in Q122 [first quarter of 2022] have exacerbated inflationary pressures in Zimbabwe, which were already elevated as a result of foreign-exchange shortages, acting as a headwind to private consumption. However, government spending will rise sharply in the run-up to elections in 2023 (date yet to be determined), providing some support for growth.
“Indeed, we expect government consumption to be the main driver of growth in 2022, rising by 5.0% and adding 1.6 percentage points to growth. The mid-term budget review announced in July by Finance Minister Mthuli Ncube more than doubled the expenditure targets outlined in the initial 2022 budget, from ZW$968.3bn (US$1.9bn at the current official mid-market exchange rate) to ZW$1.9tn. While Zimbabwe remains locked out of capital markets and the Reserve Bank of Zimbabwe (RBZ) has stated its commitment to constraining money supply so as to reduce inflation, the government will ramp up spending in the run-up to the 2023 elections, with expenditure being financed by monetisation and domestic borrowing.”
The revised budget projects spending on public-sector salaries at ZW$832.8bn (up from ZW$492.8bn previously), according to Fitch Solutions will give some support to spending by the country’s estimated 116 000 civil servants.
“However, overall private consumption growth will be constrained by elevated inflation and the increasing cost of credit. Consumer price inflation rose to 256.9% year-on-year in July 2022, the highest level since February 2021, with the rise in inflationary pressures being driven both by high global commodity prices and continued depreciation of the Zimbabwe dollar,” the report reads.
Official figures show that food and fuel prices remain particularly elevated—the local-currency price of a litre of petrol is almost 350.0% higher than at the beginning of the year, while in July the Grain Marketing Board announced a 30% increase in the price of wheat.
“We expect real GDP growth to accelerate slightly, to 2.4%, in 2023. Government consumption will increase further, notably in H123 [first half of 2023], when the election is most likely to take place,” Fitch says.
“Once the vote has been held we expect the authorities to make greater efforts at fiscal consolidation, leading to a moderation in money-supply growth and thus inflation by the end of the year (we forecast a year-end rate of a still high 55.0%, but down from 195.0% at end-2022).”