Despite a variety of ideologies and policies, it is widely agreed that the majority of Africa still faces significant economic difficulties. Zimbabwe was not exempt, and the country’s economic downfall has been the subject of intense discussion. Since the socialist rhetoric of the government lead to massive budget deficits in the late 1980s, the nation has seen dramatic economic transformations. Due to this, the IMF had to provide economic assistance in the 1990s, which added another crisis component (University of Zimbabwe).
Before the COVID-19 pandemic, Zimbabwe’s economy was already experiencing a downturn, declining by 6.0% in 2019. The withdrawal of subsidies on the prices of gasoline, electricity, and maize meal, as well as the suppression of foreign exchange gains and excessive money creation, all contributed to a decline in output. In 2020, real GDP shrank by 10% as a result of the COVID-19 epidemic and ongoing drought. The average rate of inflation surged to 622.8% in 2020 from 226.9% in 2019. (AfDB).
In 2019, the poverty rate was 70.5%, while the unemployment rate remained high at above 21%. The financial industry was secure. Credit expansion was possible for banks. In 2020, the loan-to-deposit ratio was 38.8% compared to a target of 70%. In contrast to the legal standard of 5%, non-performing loans are now at 3.23%. The regulatory minimum of 12% is more than tripled by the capital adequacy ratio (AfDB).
“Inflation in August reached 285 percent compared to a year earlier, signaling the resurgence of pressures on pricing and currency rate depreciation. Real GDP growth is anticipated to decrease to approximately 312 percent in 2022 from an estimated 7 percent in 2021 due to a slowdown in agricultural and energy outputs caused by irregular rainfall and increased macroeconomic uncertainty, while mining and tourism are projected to rebound. However, uncertainty is still quite high, and the prognosis will rely on how external shocks develop the direction of policy and the implementation of inclusive growth-friendly measures,” added Mr. Ghura.
More work is required to hasten structural changes and firmly stabilize macroeconomic stability. The near-term macroeconomic imperative is to reduce inflationary pressures by tightening monetary policy further as necessary, allowing for greater exchange rate flexibility through a more transparent and market-driven price discovery process, addressing FX market distortions, and removing exchange restrictions. This is in line with recommendations from the 2022 Article IV consultation.
To promote transparency, conduct monetary and exchange rate policy better, and increase central bank independence, the quasi-fiscal activities of the RBZ should be moved to the budget. To foster long-term, inclusive growth, structural changes targeted at enhancing the business climate and lowering governance risks are essential. Supporting Zimbabwe’s development goals as outlined in the nation’s National Development Strategy will benefit from long-term macroeconomic stability and structural changes (2021-2025).
“As mentioned in the 2022 Article IV consultation, since Zimbabwe paid its past-due debts, Zimbabwe has been a Fund member in good standing. In addition to macroeconomic data, the Fund offers comprehensive technical support in the areas of financial sector reforms, economic governance, and macroeconomic statistics. However, Zimbabwe’s unsustainable debt and public external arrears prevent the IMF from delivering financial assistance. A comprehensive restructuring of Zimbabwe’s external debt, including the payment of arrears, would be necessary for a Fund financial arrangement, as would a reform agenda consistent with macroeconomic stability, growth, and poverty reduction, strengthening of the social safety net, and governance and transparency reforms. For debt relief and financial help, international re- engagement is still essential.
According to Ncube, the government would continue to implement strict monetary and fiscal policies to keep inflation in check. Inflation peaked at 30.7 percent per month in July of this year, but following numerous measures, including the introduction of gold coins and an increase in interest rates, the rate steadily decreased to 3.2 percent in October. The annual rate of inflation also decreased, falling from 285.1% in August to 268.8% in October.
“To preserve the present inflation deceleration trend going forward, supporting monetary and fiscal policies will be kept in place along with coordinated actions. In this context, the government is setting a fiscal budget deficit limit of not more than 1.5 percent of GDP in 2023, as well as a monthly inflation target of between 1 and 3 percent “said Ncube.
According to estimates, inflation will continue to be high in 2023 and average 213% in 2022. 3.6% real GDP growth is anticipated in 2023 and 2024, driven by a stronger agricultural season, less inflation, and loosened pandemic regulations (World Bank).,
It is anticipated that agricultural production will increase once again when rainfall levels return to normal and fertilizer costs decline. The ability of the government to control inflation and FX market distortions during an election year, as well as the global slowdown in GDP, fluctuating commodity prices, and climate change, all provide significant downside risks to the forecast. The nation will have elections in 2023. (World Bank).
The primary budgetary risks are the need for increased investment in agriculture and the persistence of wage pressures. In the longer term, the poverty rate is anticipated to drop somewhat, but the sensitivity to climatic shocks and inflationary pressure is still quite high. A changing and more unpredictable environment will cause shocks to agricultural output, while economic shocks like inflation and supply-chain disruptions will continue to put a burden on household budgets (World Bank).
The majority of the issues discussed in this article will be addressed by the Constitution of Zimbabwe when it is implemented properly, but doing so requires political will. Government officials who have power must build a political will. Therefore, everyone in Zimbabwe must abide by the Constitution’s rules. To restore sanity to the nation, constitutionalism and the rule of law must be enforced concurrently.
- Chidoko, C. (2016). Economic reforms and policies in Zimbabwe: A concise analysis.
- Chigumira, G., Chipumho, E., & Chiwunze, G. (2020). Fiscal transparency and accountability within the context of devolution in Zimbabwe.
- Gumunyu, K. J. (2019). Hard-boiled egg index: Surviving Zimbabwe’s hyperinflation. LifeRich Publishing.
- Hein, E., & Truger, A. (n.d.). Future fiscal and debt policies. Fiscal and Debt Policies for the Future. https://doi.org/10.1057/9781137269539.0008
- International Monetary Fund. African Dept. (2020). Zimbabwe: 2019 article IV consultation- press release; Staff report; and statement by the executive director for Zimbabwe.
- International Monetary Fund.
- Kanyenze, G. (2022). Leaving so many behind: The link between politics and the economy in Zimbabwe. African Books Collective.
- McIndoe-Calder, T., Bedi, T., & Mercado, R. (2019). Hyperinflation in Zimbabwe: Background, impact, and policy. Springer Nature.
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- https://d3fy651gv2fhd3.cloudfront.net/charts/zimbabwe- gdp.png?s=zimabwegdp&projection=te&v=202208111307V20220312&ismobile=1&w=400&h=250&lbl=0