Zimbabwe’s economy is set to bounce back from two successive years of contraction and register 4.2% growth in 2021 on the backdrop of sustained price stability, with potential to create room for economic recovery, the African Development Bank (AfDB) says.
While Zimbabwe was already in recession before the Covid-19 pandemic, with the economy contracting by 6% in 2019, the global pandemic worsened the situation as the economy slumped by 10% in 2020.
In its economic outlook, the pan-African bank says Zimbabwe will also see 3.2% Gross Domestic Product growth in 2022.
Zimbabwe will pin its hopes on sustained stability in the country’s banking system, which has increased capacity of credit and an improved agricultural season characterised by normal to above normal rains.
However, AfDB said recovery will continue to be blighted by the pandemic whose end seems out of sight amid growing concerns of a third wave.
“Modest economic recovery is projected in 2021, if effective measures are taken to stabilise foreign exchange and avoid excessive money creation. But the outlook is clouded by a number of factors,” AfDB says, urging the government to ease border closures.
“The pandemic and government policies to contain the (Covid-19) disease will affect production levels across all sectors although a partial easing of border closures may help.”
The continental bank warned that the industrial and mining sectors were faced with reduced competitiveness, low commodity prices and power shortages.
“The problems are exacerbated by debt distress and arrears and low international reserves that can cover less than one month of imports,” AfDB says.
Zimbabwe has been buckling under a debilitating debt overhang, weakening the government’s capacity to attract fresh capital.
“Zimbabwe’s total public debt is US$11.1 billion (53.9% of GDP), of which 95.6% is external. including US$6.4 billion in arrears to international financial institutions, bilateral, and private creditors. Zimbabwe has been in default since 2000,” reads the outlook report.
To deal with the burgeoning debt situation , Zimbabwe instituted a Staff Monitored Program with the International Monetary Fund to help implement economic policies from May 2019 to March 2020 collapsed in September 2019.
The government and the Fund have not agreed to a new arrangement, which would be aimed at helping Zimbabwe clear its arrears.
As a result, the country will have to continue to rely largely on domestic resource mobilization and borrowing from non-Paris Club members like China.
AfDB attributed stability on the money market to government’s foreign currency auction system. This would translate to increased credit by the country’s banks.
“The banking system is stable. Banks have some room to increase credit.”
However, Zimbabwe’s economy continues to be blighted by poverty which stood at 70.5 percent in 2019.
The loan to deposit ratio was 38.8 percent in 2020 against the Benchmark of 70 percent, said AfDB.
AfDB also warned that another wave of infections would further retard growth for African countries like Zimbabwe.
“New waves of the COVID–19 infections could require reimposition of severe containment measures such as lockdowns and quarantines that would retard or derail the recovery process,” reads the outlook report.
“Downside economic and social factors include the risks of social tensions, debt overhang, extreme weather events, subdued commodity prices, weaker tourism and remittances, and financial market volatility that impedes capital flows.”
The projected recovery could be better than anticipated if vaccines become available around the continent. Several African countries have begun their national vaccination programmes as they battle to save their populations from the deadly pandemic.