Annus horribilis: the economy is worse than you thought

'Action on ethics and corruption, not rhetoric, is what economy needs'

Zimbabwe’s economy could shrink by as much as 6.5% this year, worse than initially projected, due to a devastating drought as well as shortages of foreign currency, electricity and fuel, according to a Treasury document seen on Monday.

The country is experiencing its worst economic crisis in a decade, with millions needing food assistance and resurgent inflation reaching 300% in August, according to the International Monetary Fund.

After optimistically forecasting 3.1% growth in his maiden budget speech last November, Finance Minister Mthuli revised his outlook and projected a 2.1% contraction during a mid-term review on August 1.

A 2020 budget strategy paper published by Treasury shows key sectors of the economy – mining, agriculture, electricity and water – shrinking by double digits.

“In 2019, severe exogenous shocks related to climate change caused drought and cyclone which compromised agriculture activities and electricity generation with extended effects on other sectors, – all forcing the economy into recession,” Treasury said.

“The economy is, therefore, projected to underperform by as much as -3% to -6% in 2019. The situation is being worsened by shortages of foreign currency, electricity and fuel, all constraining industry operations.”

Treasury, however, expects the economy to quickly rebound, with 4.6% growth projected in 2020 on the back of an anticipated improvement in the farming season.

It wasn’t all bad news, though, with exports in the first seven months of the year up 7% to US$2.1 billion, against US$1.96 billion during the same period of 2018. 

Imports, on the other hand, were 21% lower between January and July 2019, reflecting an acute foreign currency crisis.

While the trade deficit narrowed significantly to US$679 million in the first seven months of 2019, from US$1.58 billion in the corresponding period last year, this came at the expense of massive shortages of key goods and services.

Electricity imports saw the biggest decline, by 73%, from US$108 million between January and July 2018, to US$29 million this year. Curtailed power imports and depressed local generation have forced industries and households to go without electricity for an average 18 hours daily.

Other key imports that recorded double-digit declines are crude soya bean oil (down 37%), wheat (down 38%) and ammonium nitrate (down 43%).

Looking forward, the government plans to spend ZWL$28.5 billion in 2020. With revenue seen at ZWL$24.8 billion, a budget deficit of ZWL$3.7 billion (1.8% of GDP) is projected.

The government wage bill is expected to double from ZWL$5.56 billion this year to ZWL$11 billion (44% of revenue) in 2019.