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Zim’s growth target doubtful

The Brett Chulu Column

The Pre-Budget Strategy Paper released by Treasury projects a 7,4% economic growth for 2021 — Treasury is expecting a rebound in 2021. This article will tease out the feasibility of this projection.

The 2021 economic growth projection as stated in the Pre-Budget Strategy Paper, is within the context of the themes National Development Strategy One (NDS1)(2021-2025) broadly outlined in Pre-Budget Strategy Paper. By extension, the growth projection must be understood within the global context of Vision 2030.

Growth projections debate
The first step of our inquiry should be the widely differing growth projections issued by our Treasury and the Bretton Woods institutions. This affects the base on which the 2021 projection is built on. This is a necessary critical inquiry, given that the yeas 2019 and 2020 are years of recession, not just minimal one, but a deep one.

Our Treasury deems our economy will shrink further by 4,5% this year (2020) following a slump of 6% in 2019. The World Bank and the IMF see a deeper slump over 2019 and 2020.The African Development Bank (AfDB) estimates that our economy shrunk by 12,8% in 2019. The Bretton Woods institutions estimated that our economy shrunk by 8,3% in 2019. They see our economy taking another battering this year, resulting in a 10,4% fall of economic growth in 2020. If we take the Treasury’s less pessimistic view, our economy is expected to have shrunken by 10,7% over two years. The Bretton Woods, impliedly, see a 19,6% economic decline in two years.

What is clear is that the extent of economic decline over 2019 and 2020 is highly debatable — our Treasury is still using its own estimates for our 2019 economic decline — no actual data has been ascertained. This means the actual nominal GDP level at the end of 2020 will not be definitive. Based on the widely differing estimates for the decline of our economy in 2019 and 2020, our actual GDP lies in a wide range.

2021-2023 projections
The Pre-Budget Strategy Paper spells out economic growth projections for 2021-2013 as follows: 7,4% in 2021, 5,5% in 2022 and 5,2% in 2023. The World Bank is projecting a 2,9% growth for 2021.

Our Treasury’s projection is 2,6 times that of the World Bank. This wide difference needs to be reconciled. The 5,5% and 5,2% for 2022 and 2023 respectively are in the order of the actual growth rate for 2018 (5,5%), achieved without the implementation of the TSP.

We need to analyse the source of growth Treasury is projecting for 2021-2023.

According to our Treasury, the economy is seen growing 7,4% in 2021. Of 7,4% envisaged growth for 2021, gross fixed capital formation is expected to account for 78,4%. Gross fixed capital formation is expected to add 5,8% to our economic growth in 2021. Of that expected gross fixed capital formation, government is expected to add 5,1% growth to our economy in 2021.

Put more forcefully, government’s investment in infrastructure and other capital projects is expected to drive 70% of our expected economic growth in 2020. Private sector’s investment in capital expenditure is expected to add 0,7% to our 2021 economic growth. Put differently, private sector investment in productive assets is expected to drive 9,4% of our economic growth.

In 2022, our economy, as per Treasury’s figures, is expected to grow by 5,5%. Gross fixed capital formation is expected to grow the economy in 2021 by 6,7%, with government-led capital outlays, growing the economy by 6,1%, with a negative trade balance dragging the 6,7% growth by 1,9 percentage points. So in practical terms, in 2022, our economic growth is expected to come entirely from government-driven capital programmes.

In 2023, a similar pattern is expected, with government-led gross fixed capital formation expected to add 5,5% growth to the economy. With our overall economic growth for 2023 projected at 5,2%, a drag of minus 1,8 percentage points on economic growth from an expected trade deficit will, like in the previous year (2022), mean government-led capital outlays will be overwhelmingly driving economic growth.

The path of economic growth, as implied by numbers released by Treasury, means government sees itself as the direct and key driver of economic growth for the first three years of the NDS1.

The numbers tell us that the private sector will be crowded out of contributing to economic growth. Clearly, the private sector is expected to take a back seat in terms of driving economic growth.

The big picture is emerging; Treasury is not expecting meaningful external financial support to flow in to support private-sector investment in productive assets, at least up to 2023.

It is not possible for government-powered economic growth to chalk up economic growth rates that can take us to Vision 2030.

Data from Treasury indicates that no structural changes in the manufacturing sector are expected up to 2023. Exports are seen as playing a very minimal role in growing the economy. In fact, imports (2021-2023) are expected to exert a strong drag on economic growth, wiping out growth coming from exports.

We set out to analyse the soundness of the 7,4% growth projection for 2021 by our Treasury.

In 2018, when we had an inflation of less than 10%, before the TSP was implemented and a growth rate of 5,5% was realised. The combined effect of fiscal and monetary policy changes in 2019 without external financial support and climate-induced shocks resulted in a big dip in economy, estimated at between 6%-12,8%. In 2020, the negative effect of Covid-19 in league with climate shocks and further fiscal consolidation without external support are expected to cause another economic decline estimated at between 4,2% and 10,4%.

Our expected economic growth is coming off a relatively low base. Given that government capital expenditure is expected to drive 70% of the expected 7,4% growth, with the private sector investment playing a very insignificant role, risks to planned government capital expenditures such as funding constraints, project delays, possible climatic and policy shocks slowing down the planned capital projects, a recovery growth rate of between 2,5% and 3,5% is most probable.

This leads us to a pertinent question: how will the state find funds to keep rolling out capital projects to sustain expected economic growth? There is a significant risk to economic growth projections given in the Pre-Budget Strategy Paper — any averments from planned government capital expenditures by way of financial constraints, delays in progress and natural disasters will have an outsized impact in scaling down economic growth.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com.

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