After Britain ceremonially granted independence to Zimbabwe in 1980 and the country switched to majority rule, Zimbabwe’s economic history officially started. The new administration of Prime Minister Robert Mugabe supported socialism while utilizing some foreign assistance. One of Africa’s most structurally advanced economies and effective state structures was left to the new leadership. The government implemented a land reform initiative in 2000 to take farms held by white people, which led to economic contraction, poor management, corruption, and political instability.

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).

The liberal changes that the IMF forced are a well-known narrative, and as in other places, they had little to no good effects on economic growth and development and instead contributed to widespread unemployment and other social evils. Additionally, the economic difficulties of the new millennium were brought on by unfavorable political and economic decisions. The nation had a peak in its hyperinflations in 2008, reaching levels second only to Hungary worldwide (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).

Foreign exchange measures were put in place in June 2020, which slowed down inflation that peaked in July at an annual rate of 838%. The fiscal and current account deficits both improved after July but both declined for the whole year. When compared to the current account, which had a surplus of 1.1% of GDP in 2019 but a deficit of 1.9% in 2020, the budget deficit increased from 2.7% to 2.9% in 2020. In February 2019, the value of the ZWL decreased by 2.5, and by December 2020, it had stabilized at roughly 82 ZWL (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).

To review recent economic events and the economic prospects, an IMF staff team led by Dhaneshwar Ghura held a staff visit in Harare from September 12–19, 2022. Mr. Ghura made the following declaration during the IMF mission visit: “Zimbabwe’s economy has demonstrated resilience in the face of substantial shocks. The COVID-19 epidemic has already wreaked havoc on Zimbabwe’s economic and social conditions, which are further being hurt by Russia’s involvement in the conflict in Ukraine, low rainfall, and pricing pressure. ”

“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.

The IMF delegation highlights the efforts made by the government to control inflation and stabilize the local foreign exchange market. In this regard, the recent tightening of monetary policy and the control of budget deficits are positive initiatives that have helped to close the exchange rate difference between the parallel and main markets.

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 Zimbabwe’s finance minister Mthuli Ncube, the country’s GDP would expand by 3.8 percent in 2023, powered by the mining, building, agricultural, and tourist industries. Ncube said the next year’s growth is anticipated to be fueled by favorable international commodity prices, a good agricultural season, a stable power supply, and tight monetary and fiscal policy, among other things. He made the remarks while delivering the 2023 national budget speech in the new parliament building in Mt. Hampden.

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.

The transmission of new technology and investment in modernizing the economy is being hampered by a reduction in trade integration and a low level of foreign direct investment. The country’s capacity for growth is constrained by unmanageable debt levels and persistent IFI arrears. In 2022, 76% of the GDP is projected to be owned by foreigners. Due to the over 70% of the debt that is in arrears, it is difficult to obtain the favorable financing necessary to promote productive investment. In response, the government has developed an Arrears Clearance, Debt Relief, and Restructuring Strategy and has started making symbolic payments to IFIs and Paris Club creditors (World Bank).
Consumption and investment have been slowed down by rising inflation, the devaluation of the local currency, and increasing borrowing rates. Strong remittance inflows, along with increasing gold exports, partially offset the negative impact on private spending and have maintained a surplus in Zimbabwe’s external current account. The Central Bank further liberalized the currency market, tightened monetary policy, increased interest rates (from 80% to 200%), and produced gold coins as a store of value to curb inflation. Through these actions, the parallel market has stabilized, and as of September 2022, the parallel market premium has decreased to around 35%. (World Bank).

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).

To correct historical inequities, the nation adopted “equity-based” economic policies after gaining independence. Although the Government of Zimbabwe (GoZ) has implemented several economic measures since 1980, it was realized that the country’s economic status has been deteriorating since independence as a result of unfavorable economic circumstances. In many nations, particularly developing ones, it is believed that the elite with links to politics, business, and markets dominate the process of establishing and implementing public policy (Mutenga, 2021). Based on (its) specific historic-cultural conditions, the national interest, and the welfare of the populace, the nation must respond to its current challenges.

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.


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