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By Simbarashe Manhango
Zimbabwe is on an economic recovery trajectory this year and could strengthen further in 2022 despite the challenges posed by natural disasters and the Global Covid-19 pandemic, a report by the World Bank has revealed.
The report, the Zimbabwe Economic Update (ZEU), published last month (June 2021), anticipates that the country will experience improved but muted growth in 2021. While global uncertainty remains a risk, economic growth is expected to accelerate in 2022 since the adverse impacts of the pandemic will highly subside with the increased deployment of vaccines (such as the ongoing vaccination programme in Zimbabwe) that has so-far been recorded as the most successful in Southern Africa. The report also contains recommended actions to Government that, if sustained, will keep the current positive trends on an upward trajectory.
The report initially acknowledges that Zimbabwe’s economy by 2019 was already in a deep recession. It highlights that a severe drought and Cyclone Idai significantly reduced economic activity and particularly affected the agriculture, water and electricity sectors while generating ripple effects on other sectors such as manufacturing and mining. The report also highlights that in early 2020, the outbreak of Covid-19 further exacerbated country challenges, thereby dampening prospects of economic recovery at both global and local levels.
More importantly, the report underlines that the agricultural sector is expected to spearhead Zimbabwe’s economic recovery. This is driven by favourable rainfall witnessed in 2020 that is also expected to drive the growth of the agricultural sector by 9.1% in 2021. The GDP is expected to reach 3.9% this year, a significant improvement compared to 2020.
The report also projected an enhanced economic recovery that will strengthen further in 2022. The GDP growth is anticipated to reach a whopping 5.1 % as the ongoing deployment of vaccines intensifies; global economic conditions improve; and the successful implementation of the recently approved National Development Strategy (NDS1 2021-2025) by the Government.
The report by the World Bank also signalled Zimbabwe’s economic recovery and growth in other sectors including tourism, trade, service delivery as well as improved water and electricity generation. The report alluded that the major growth in the Agricultural sector, one of the key drivers of the economy would be aided by the favourable rains that the country witnessed in 2020, but also indicated that this sector would remain vulnerable to other shocks such as climate change.
The report noted the need to address more urgently the broader and structural constraints to Agriculture productivity such as insecure tenure, lack of adequate irrigation, insufficient crop diversification,and unaffordable inputs like seeds and fertilizers as they continue to limit the sector potential and increase its vulnerability to climate shock.
The report also tipped the Service delivery sector to record a growth of 2 % in 2021 and to reach 5.3 percent in 2022. At the same time, the report lauded the efforts by Government to stabilize prices through prudent fiscal policy and rules-based monetary and exchange rate policies that the World Bank observe have been effective and must be continued to enhance confidence and improve macroeconomic conditions.
The report also underlined the importance of reforming quality service delivery as an urgent priority, particularly in the social sectors noting that as the third wave continues to ravage the country causing many deaths. It said priority interventions ensured adequate access to the 2021 budget allocation for the Covid-19 response as well as the restoration of access to essential health services in the country. Health services personnel were provided with the necessary resource to improve service delivery.
The World Bank report also noted that the necessary measures that Government needed to implement to support economic growth included reducing regulatory burden and policy inconsistencies, reducing barriers to regional trade and strengtheni9ng trade facilitation and discontinuing forex retention policies.
On the fiscal side, in addition to measures to improve revenue collection, stringent fiscal policies by the Government are required to reduce distortive spending and the need to redirect resources where they are most needed including ensuring delivery of basic social services and reestablishing human capital.
While the report anticipates Zimbabwe’s economic recovery to be in a positive upward trajectory than in preceding years, the World Bank also noted a series of challenges that the country could face with regards to achieving growth.
The report noted that Government’s ability to respond to the adverse impacts caused by Covid-19 on the economy is being constrained by the country’s limited access to consensual sources of financing. External debt arrears that reached 78% of External Public Debt in 2020 have prevented Zimbabwe from benefitting from International Financing Institutions (IFIs).
Zimbabwe has been sorely depending on relief aid and assistance provided by China. Of late the last 3 decades have witnessed the strengthening of Trade Relations between China and Africa with trade between China and Africa projected to be over $200 billion per year. China has at least 10 000 owned firms on the continent. In fact, China has found a deliberate global economic strategy to fill the vacuum created by the Breton Woods institutions that had a lot of African countries including Zimbabwe under Western Sanctions or high borrowing risk status.
According to the report, the effects of the third wave and a possible fourth wave could weigh in heavily on the recovery of domestic and external demand. Despite positive steps taken to stabilize prices, inflation is expected to remain stagnant in 2021, subduing efforts to stabilize and unify the exchange rate in the medium term.
Domestic demand is also projected in the report to remain low as income will remain subdued to keep productivity and competitiveness low in some sectors of the economy.
However, the report stresses the fact that despite the challenges that could be faced, implementation of key policy reforms outlined in the recently approved NDS1 will be a priority if Zimbabwe is to achieve the much-needed economic recovery in the context of a global crisis.