Zim still in throes of debt and structural deficiencies 

Source: Zim still in throes of debt and structural deficiencies – The Zimbabwe Independent December 15, 2017

PROJECTIONS that Zimbabwe’s economy will grow 4,5% next year buoyed by a strong agricultural financing plan and a series of economic reforms that should help improve the ease of doing business and attract foreign direct investment could still be weighed down by the slow pace of reforms, lack of new funding, a widening fiscal deficit and ballooning domestic debt overhang as well as a shrinking manufacturing sector, analysts say.

Tinashe Kairiza

This comes after Finance minister Patrick Chinamasa proposed a series of bold economic policy reforms which may usher Zimbabwe into a new economic dispensation under President Emmerson Mnangagwa’s new “economic order”.

However, critics say with elections beckoning, government might pay lip service to the austerity agenda. Demands by the critical sections of the international community — the United States and European Union — for reforms first before new funding would also delay the recovery process.

Growth projections were this year revised to 1,4% from an initial 2,7% forecast as the southern African nation battles a huge domestic debt overhang now hovering around US$6 billion, widening budget deficit at US$1,7 billion, dwindling exports and widespread job cuts.

Zimbabwe’s domestic debt, standing at US$6 billion, has been swelling at 0,8% of Gross Domestic Product (GDP) each month and is forecast to balloon at least 30% next year.

Next year’s GDP growth prediction by Chinamasa was largely predicated on the anticipated success of the agriculture and mining sectors, while scrapping of the indigenisation law and introduction of cash budgeting measures are expected to position the fragile economy on a firm growth trajectory.

But analysts contend that while Zimbabwe’s economy will register growth next year, buoyed by the fresh policy interventions announced by Chinamasa in the budget presentation, structural issues characterising the economy such as limited investment inflows, an uncertain forthcoming general election and a ballooning civil service wage bill that gobbles up 93% of government revenue will restrict growth below the desired 4,5% levels.

Unrestrained spending, which characterised former president Robert Mugabe’s 37-year rule, saw the budget deficit widening from US$1,4 billion in 2016 to US$1,7 billion this year.

Next year, Chinamasa expects to trim the budget deficit significantly by a staggering US$1 billion.

The budget also addressed issues to do with tenure security for farmers, unlocking the capital value of agricultural land, working on weaknesses in the current financing mechanisms under the special agricultural programmes, marketing challenges and the need to improve the sustainability of smallholder farming through special schemes such as strategic partnerships with lead farmers.

Although Zimbabwe’s mining sector is expected to grow, production of key minerals such as platinum and diamonds is expected to remain suppressed owing to falling mineral prices on the international market, among other factors.
This year, the World Platinum Council (WPC) forecast that production of the mineral in Zimbabwe for Q3 2017 will drop by 10% due to maintenance work that various companies are undertaking.

Former economic planning and investment promotion minister Tapiwa Mashakada argued that the widening budget deficit, coupled with the country’s volatile macroeconomic environment, would derail prospects of achieving the 4,5% growth projection.

“The 4,5% growth target is a mere target that can be missed depending on the tenability of underlying assumptions and policy trajectory. In casu, the projected 4,5% growth rate critically depends on the performance of agriculture, mining and services of the balance of payments position. The budget deficit is however a serious threat to macroeconomic stability. Other infrastructural enablers will be key to the achievement of the 4, 5% target,” Mashakada said.

Mnangagwa’s government has to restore “market confidence” to attain the growth target, he said.

The new administration has expressed interest to break with the past by re-engaging with international credit financiers who have not been extending budgetary support to Zimbabwe as the southern African country struggles to service its external debt.

“Most importantly, market confidence is a sine qua non for the achievement of the growth target,” Mashakada said.

Buy Zimbabwe chairperson and economic analyst Oswell Binha contended that prevailing low crop and mineral prices on international markets would severely impact on the overall economic growth projections.

He said Zimbabwe would register “2,5% growth rate in 2018,” which is below the regional average of 7%.

“The key drivers of economic growth, agriculture and mining, are constrained due to low prices on the international market and operational inefficiencies. The 4,5% estimate is still far below the 7% regional rate. I forecast a 2,5% growth rate,” Binha said.

Economist Anthony Hawkins last week noted that the budget “was more of a story with good intentions, but without concrete measures” because the policy pronouncement alone could not resolve current structural problems such as the country’s debt obligations as well as government’s propensity to spend and borrow.

Hawkins also noted that with Zimbabwe set to hold general elections next year, growth margins would remain low as investors adopted a wait-and-see approach.

“The budget numbers show that in a year in which total spending will decline by US$300 million, government borrowing will increase by US$2 billion to US$8,2 billion. If the budget deficit is reduced by US$1 billion to US$670 million, why will the government need to borrow another US$2 billion?” Hawkins asked.

“No one can seriously have expected strong adjustments ahead of elections. Also missing was a serious discussion on the debt situation. The minister spoke optimistically about re-engagement with the international community and the resurrection of the Lima arrears clearance plan, but he did not dwell on the domestic debt clearance plan.”

TradingEconomics, a South African-based think-tank, has forecast negative growth of -1,4% for Q1 2018 due to structural issues characterising Zimbabwe’s weak economy.

According to the think-tank, Zimbabwe’s GDP is expected to remain stable at US$15 billion between 2018 and 2019, while it is projected to soar to US$17,4 billion by 2020.