THE World Bank has projected Zimbabwe’s economy to register a modest 1,5% flat-lining on last year’s figures due to weakening commodity prices and low agriculture output, a projection Finance minister Patrick Chinamasa discounts as government crafts an economic blueprint to spur growth after full re-engagement with multilateral lenders.
The multilateral lender said over the last five years, Zimbabwe has made significant progress in stabilising and revitalising its economy. The economy grew at an average of 6% annually, while inflation has been kept low.
A high public debt overhang of US$9 billion still constrains and raises the cost of capital for investment, making the country largely uncompetitive.
According to the World Zimbabwe Economic Outlook report launched on Wednesday, the country’s services sector will drive economic growth. Zimbabwe’s Gross Domestic Product (GDP) slowed from 3,8% in 2014 to 1,5% in 2015 and 2016, due largely to the impact of an ongoing drought, which is taking a heavy toll on agriculture output.
Aggregate consumption exceeds GDP and has made a disproportionally large contribution to economic growth during 2010-15.
“Zimbabwe’s economic outlook is subdued, and growth is projected to remain at 1,5% in 2016 as El Nino related weather conditions depress agricultural output, but growth is expected to revert to trend growth of 2-3% in 2017-18. However, these projections are subject to upside and downside risks, both of which are intensified by the economy’s dependence on a limited range of key sectors,” reads the report.
“Investment fell to an estimated 13% of GDP in 2015, as a high cost structure and a difficult business climate continued to erode firm competitiveness.
“Capital inflows, including external borrowing and asset sales are sustaining consumption growth, but this is untenable over the long-term.”
Chinamasa however maintained that while weakening commodity prices would slow down growth, treasury maintained the economy would grow by between 2% and 3% this year driven by a raft of reforms boosting capital inflows. He said Zimbabwe, which owes three preferred creditors—World Bank, International Monetary Fund and African Development Bank — US$1,8 billion in arrears is crafting a strategy paper to quicken economic growth.
“The World Bank team is here to brainstorm on a country financing programme,” Chinamasa said.
“We are working frantically to produce a country strategy paper to determine funds required.”
Zimbabwe is also experiencing liquidity constraints, rolling power outages and high labour costs weighing down on key economic sectors.