Economists dispute 9,4% growth rate

Zimbabwe is officially projected to grow its gross domestic product (GDP) to US$11,91 billion, a 102% increase since dollarisation in 2009 at US$5, 89 billion,according to  Economic Planning minister Tapiwa Mashakada.

 

Last year, the GDP is estimated to have closed at US$10,06 billion.

Mashakada told the Mandel/GIBS economic symposium held last Friday that the prospects of a 9,4% economic growth look good if the key fundamentals such as the use of multi-currency system, the firming of commodity prices and the adherence to cash budgeting continues.

However,  economics  lecturer Prof Tony Hawkins and the World Bank country economist Nadia Piffaretti differed with the minister, saying Zimbabwe’s economy was not growing but had rather benefitted from a rebound effect as it was coming of a low base.

Piffaretti said the economy was not yet in a growth mode but had experienced a rebound effect, which was based on outside factors that government had no control over. These outside factors included the multi-currency regime and firming commodity prices.

She said the economy was still vulnerable to shocks as its gross official reserves, including IMF SDRs allocation, were low at US$197 million in December, representing 0,3 months of imports. The minimum reserves should at least cover three months.

Hawkins said that his projections were more guarded than those of government, with his own growth rate unlikely to exceed 6 or 7%.
This, he said was because the balance of payments was currently under stress, with a current account deficit of 23,4% of GDP.

“A current account deficit of US$1,89 billion or nearly a fifth of GDP is unsustainable.There is a large capital account ‘surplus’ of US$1,2 billion, but US$800 million of that is offshore borrowing, half of it short-term. This is not a sustainable business model for a country where foreign debt is already 108% of GDP and where external arrears are 70% of GDP. As a rough rule of the thumb, when debt exceeds 90% of GDP, output growth slows by one percentage point a year,” Hawkins said.

According to the Ministry of Finance, the country’s debt is currently above US$9 billion.

MACRO-ECONOMIC INDICATORS    2011    2012
GDP    7.0%    3.5-4.5%
INFLATION    6.5%    9.5%
EXPORTS    + 65%    + 20%
IMPORTS    + 100%    + 20%

Prof Tony Hawkins’  Macroeconomic indicators

Analysts say little has been done in terms of dealing with the fundamentals that influence economic growth such as unemployment, reduction in recurrent expenditure and an improvement in foreign direct investment.

Mashakada said the global economy had affected Zimbabwe’s performance as FDI numbers had dried up.

He said: “There is reduced trade investment, decline in export demand reduced aid inflows from Eurozone countries and limited credit lines.”

However, the biggest danger, cited by both Piffaretti and Hawkins was politics, which remains the main pillar on which economic stability is premised on.
Revenue, which excludes diamond revenue is expected to grow slightly to US$3,4 billion from US$3 billion last year although its percentage of GDP will drop slightly to 28,6% from 30% last year. 

Mashakada said including diamond earnings, revenue would be US$4 billion.

The government is targeting year-on-year inflation of 5% for 2012. Mashakada said this could be met if there is no upward pressure on utility costs, wages, higher costs of funds, import tariff regime, food inflation and real estate prices.

But Hawkins said that the CPI figures understated inflation considerably, with his estimates at year end at 9,5% from a year-end figure of 6,5%.
Analysts said the state of the economy is reflected in the performance of the stock market.

The main index on the stock market declined 7% last year as trading was characterised by low liquidity from both foreign and local investors.
Economic growth is currently being forecast to be driven by firming commodity prices in both mining and agriculture. Hawkins said even if favourable influences were to apply, economic growth was unlikely to exceed 6% to 7%.

“Without substantial investment, especially in infrastructure and productive capacity, the economy will not expand at rates of 9% plus,” said Hawkins.

Mashakada said government would this year seek to deepen infrastructure development, engage international stakeholders and the Diaspora as well as deal with debt and external arrears and speed up parastatal reforms.

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