Zim Economic Growth Reviewed Downward

Zimbabwe Minister of Finance, Mthuli Ncube

Zimbabwe’s Ministry of Finance and Economic Development (MOFED) has projected a slowdown of economic growth from the initial 5.5% to 4,6%, Bkays Money can report.

In its 2022 mid-term budget review, the ministry affirms that the impact of geo-political developments is weighing down on the growth potential of the economy.

“The downward revision is mainly arising from a reduced output from the 2021/22 agricultural season, compounded by continued depreciation of the local currency and rising inflation,” Minister Mthuli Ncube said.

Agriculture is the backbone of the Zimbabwean economy, and in the initial budget, it was expected to grow the economy by 5,1%, but the figure has been revised down to 5,0%. On the other hand, the nation is facing a huge economic crisis, with increased inflation accelerating from 60.7% in January to 191.6% in June 2022.

According to the MOFED, this has been driven partly by external factors which impacted negatively on import prices of raw materials, food and liquid fuels.

“Imported inflation contributed significantly to domestic inflation through cost push factors, whilst domestically, adverse inflationary pressures and sharp decline in the exchange rate were the main drivers of inflation,” reads the budget review.

Despite the numerous global and domestic downside risks, the domestic economy is still projected to record increased activity in the sectors of mining (9.5%), construction (10.5%), accommodation and food services sectors (50%).

The ministry, in tandem with the monetary authorities, is still optimistic about its measures for economic growth, which are the maintenance of the multiple currency regime, continued fiscal consolidation, tight monetary policy stance, moderate agricultural output on account of the increase in prices of key inputs and variable rainfall pattern, mitigation of the adverse expectations on both inflation and exchange rate, continued geo-political tensions with spillover effects on and favourable commodity prices that will support mining production and export receipts among other measures.

The ministry expects almost all sectors of the economy to record positive growth except agriculture which was affected by the uneven rainfall distribution, bottlenecks in inputs distribution and high cost of inputs, among other challenges.

The mining sector is expected to grow faster at 9.5% in 2022, largely driven by increased output in gold, Platinum Group Metals (PGMs), chrome, nickel, diamonds and coal, as well as record high international commodity prices and increased investments in the sector.

“Despite the increase in manufacturing capacity utilisation to 56.5% from 47% in 2021 and increased availability of domestically produced goods in the supermarkets, growth of the sector is now expected to slow-down to 3.6% in 2022 compared to an initial projection of 5.5%. The downgrade is mainly due to the high cost of production, attributable to rise in prices of imported raw materials and poor agricultural season,” reads the mid-term budget review.

Meanwhile, in response to the global supply chain disruptions affecting the availability and prices of fertilizer on the domestic market, the Government is supporting local production of fertilizer through prioritising access to foreign currency and working capital requirements for local fertilizer manufacturers.

“The accommodation and food services sector is expected to continue to grow in 2022, with bed occupancy rate projected at 20.6%, benefiting from recovery in international tourism and lifting of mandatory quarantine requirements worldwide. The information and communication sector, on the other hand, is projected to grow by 5.3%, driven by demand for mobile voice traffic and internet data,” the ministry adds.

Although the government remains optimistic about its economic measures, in random interviews with ordinary Zimbabweans, this publication gathered that citizens have lost trust in the government and its economic measures hence the downward review of economic growth is not surprising.

“The downward review of economic growth by the authorities is not surprising. Most of the policies they put in place to grow the economy are affected by corruption, so it becomes difficult for our economy to grow,” said one Zimbabwean who refused to be named.

In its April 2022 World Economic Outlook, global authority, The International Monetary Fund (IMF) projected global economic growth at 3.6% in 2022, down from their initial estimate of 4.9% in January 2022, on account of the anticipated adverse impact of the ongoing Russia/Ukraine crisis, as well as the re-surgency of the COVID-19 omicron variant, particularly in China. Weakening growth in China’s economy has wider implications for the Emerging Market and Developing Economies, as well as for commodity exporters.

“Economic growth in advanced economies is expected to decline from 5.2% in 2021 to 3.3% in 2022, whilst growth in the United States is projected to slow down to 3.7% during 2022. The Euro zone is projected to grow at a slower rate of 2.8% in 2022 from 5.8% in 2021, with the biggest downgrades being economies such as Germany and Italy, which have relatively large manufacturing sectors and greater dependence on energy imports,” IMF believes.