‘Capital inflows to dwindle further’

CAPITAL inflows are seen weakening further this year with consumer spending falling by 10% to 15% to RTGS$32 billion from RTGS$36 billion in 2018 despite government’s optimistic projections, an economist has said.

— Staff Writer.

Economist Tony Hawkins says Zimbabwe’s re-engagement is key to the country’s economic turnaround.

He said capital inflows would definitely weaken owing to shut offshore commercial borrowings and currency devaluation that have spooked private investors.

The country has failed to address the after effects of austerity measures instituted by Finance minister Mthuli Ncube to reduce the fiscal deficit and control money supply growth that triggered high inflation in the economy. Inflation was measured in May at 97,85%.

The economy is in recession with GDP forecast to fall 2,1% (International Monetary Fund Staff-Monitored Programme) or 3,1% (World Bank) coupled with declining output and employment accompanied by chronic inflation — forecast average for 2019 is 80% (SMP) and 50% year-end.

The country is expected to become more dependent on diaspora remittances and trade credits. Tax revenue is expected to rise 70% this year with spending increasing 55%.

The SMP projects a negative balance of payment position of US$350 billion for 2019 and US$965 billion for 2020 helped by a US$4,67 billion increase in exports this year and US$5 billion exports in 2020.

Under the SMP, imports are seen coming down to US$6 billion this year from US$7 billion in 2018 while remittances are seen growing to US$1342 billion from US$946 in 2018 .

Hawkins says these projections are optimistic given that exports are underperforming and imports are down.

Hawkins last week told the 5th Actuaries Society of Zimbabwe (ASZ) conference in the capital that tobacco exports, which the country normally relies on are likely to halve — loss of $400 million — while gold is increasingly finding its way into informal channels and official purchases were down 18% in April.

Currently, mineral exports are also under threat from the United States-China trade war, power cuts as well as fuel and forex shortages at home.

“Import demand is recovering as buyers scramble for generators and solar equipment, as well as imported essentials (maize and wheat), while there is little evidence that fuel price hikes have dampened demand. With the government shutting itself out of offshore commercial borrowing and private investors alarmed at recent currency market developments, capital inflows will weaken. The country will become more dependent on diaspora remittances and trade credits, though these too have been adversely affected,” he said.

Real wages, already at a five-year low, are seen falling steeply as wages will not keep pace with inflation as well as 13% increase in taxation and fuel prices 5% fall in real output with increase in unemployment.
This is seen resulting in lower informal sector spending in rural areas due to the adverse effects of drought and cyclone Idai.

Hawkins said government cannot afford to continuously focus on the economy and ignore politics as the price of full re-engagement with the international community may be some form of coalition government.

“This is not acceptable to the ruling party at this stage. But, as conditions continue to deteriorate, its negotiating stance is likely to change. Government and IMF hope SMP will succeed clearing the way for debt-restructuring and forgiveness from the Paris Club. But at this juncture, the bulk of the risks are to the downside, not least because Government will not accept coalition government and this may be required to win over the US,” he said.

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