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Economists throw caution on growth targets


FINANCE minister Mthuli Ncube’s growth targets, which he presented in his Mid-term Budget statement and review, are unrealistic as some sectors of the economy, such as hospitality and tourism, have been devastated by the Covid-19 pandemic.

Economic analysts said this week the Gross Domestic Product growth targets presented last week could only be met if urgent steps were made to resolve several problems affecting the economy.

They spoke after Ncube stuck to his bullish 2021 projections, reviewing GDP growth targets up to 7,8% from the 7,4% he set when he presented the 2021 budget in November last year.

He anchored the growth on a rebound in a string of key sectors, including tourism, which he projected would expand by an ambitious 6,4%, despite being battered by a relentless Covid-19 pandemic.

The Treasury boss also said his growth projection would be anchored on positive spin-offs from a good agricultural season following good rains received this year.

Bullish international mineral prices and the scaling up of a vaccination drive to combat the Covid-19 pandemic, which has held back spending power and precipitated job losses in the past year, would also underpin economic growth, Ncube said.

His growth projections fell in line with decelerating inflation rates, which slowed to 56% this month, after ending the year 2020 at about 336%.

This figure is projected to slow down to between 22% and 35% by year end.

But analysts cited inflationary pressure that remains high despite the current downward trend, the effects of the Covid-19 pandemic, diminishing spending power and a sharp slowdown in mining sector growth, among some of the biggest hurdles confronting the economy.

In addition, continued foreign currency shortages and an unstable currency would remain major challenges requiring immediate attention to thrust the economy on a growth trajectory, the economists said.

They also warned that a huge debt overhang would militate against ongoing international re-engagement efforts and called on government to put together a credible repayment plan.

This would be key in unlocking lines of credit and addressing a high country risk tag.

Instead, the economy would grow by 5,5%,  one of Zimbabwe’s leading equity market analysts, Morgan & Co said.

The firm said this slower growth rate would be informed by pressures to spend ahead of the general elections of 2023 and lack of a stimulus package to under fire industries that have been battered by the pandemic.

“The Government of Zimbabwe has echoed strong economic growth in 2021 despite the Covid-19 threats. However, the serious question is whether this growth is sustainable or is just an indication of a low-base effect,” Morgan & Co said.

“In our view, the 7,8% GDP growth projection appears to be overly optimistic.”

It said inflationary pressures would be limited in 2021, bearing in mind strong foreign currency accounts (FCA) balances position of US$1,5 billion and the impact of the US$1 billion Special Drawing Rights (SDR) allocation being expected from the International Monetary Fund (IMF).

Morgan & Co noted that there were still risks of budget overruns in the outlook.

“Political interests will always take centre stage and this could lead to budget overruns. Another concern is the lack of a tangible arrears and clearance plan which could delay re-engagement efforts with international financiers,” it said.

Morgan & Co also said the debt overhang was a dent on the country’s credit profile.

“We also highlight that there is a lack of a comprehensive stimulus package for productive sectors including tourism. This is critical in terms of enabling recovery from the effects of Covid-19.  In addition, while the minister presented good numbers (inflation outlook and growth projections), poverty levels remain high given the limited social-safety nets. There is also a need to formalise the ever-growing informal sector in Zimbabwe so as to expand the tax-base.”

Ncube projected tourism would grow by 6,4% in 2021, despite being affected in the first half of the year where occupancies averaged below 25% after arrivals fell by wide margins as both foreign and local travel remained closed.

The sector lost US$1 billion last year, after arrivals plummeted by 90%, the biggest such fall in four decades.

Economists are of the view that tourism growth would be underpinned by destination branding and country image transformation, domestic, regional and international tourism promotion, establishment of a tourism revolving fund, opening up of skies, establishment of the tourism satellite account  and tax dispensations on tourism capital goods.

Economist John Robertson said the projections were unrealistic as there was a need to strengthen various economic sectors.

“I think the guess was optimistic because if we look at the tourism sector, we have few passenger aircraft and the most popular tourist event, the Tiger Fishing event, which is usually held in Kariba will be badly affected, so the chances of growth are slim,” he said.

“What we need now is investments and import of machinery and training people on how to use the machinery. Companies also need to modernise equipment for us to have a high growth rate because we need billions of dollars to achieve those projections. It’s a slow process and it might be slower than we anticipate.

“For example, Zimbabwe is still an expensive tourist destination compared to other destinations across the globe so we need to address some of the issues such as the tax levy,” he added.

Zimbabwe National Chamber of Commerce chief executive officer Chris Mugaga said Ncube’s targets were overly ambitious.

“Our situation is more like a titanic floating in shallow waters which appears to be stable; so we need policies that are structurally strong because this macro-economic growth will not translate into micro-economic transformation,” he said.

“We do not expect a growth in those sectors because if we take a look at the tourism sector, the number of arrivals in the first quarter declined by 90%; we can’t expect growth in such a situation.”

The power sector is projected to grow by 13,9% while manufacturing is expected to grow by 7%.

The Treasury projects inflation will fall from 56,4% as of July this year.

But economist Chenaimoyo Mutambasere said the factors necessary to drive growth were not in place.

She said attainment of the 7,4%, the initial growth projection, was nearly impossible, let alone the higher projections of 7,8%.

“As I have said before, the factors required to attain a growth target are all severely compromised before we take into account the anticipated shocks from the 3rd and possibly fourth Covid-19 waves,” she said.

Mutambasere said the mining sector has not performed well in the first half of the year and problems such as power outages and a high cost of fuel would affect the industry into the future.

She said there was minimal effort for capacity building in mining where artisanal miners were fast taking over in terms of production.

“The mining sector suffers from poor working conditions such as bad weather, which is mostly in terms of heavy rains and it affects production. Further, an undocumented supply chain results in smuggling or other forms of leakage from the mining sector,” Mutambasere said.

She said industry was also struggling after the government increased electricity tariffs and fuel prices, which raise production overheads on already strained industries given the Covid-19 lockdowns.

In terms of inflation, Mutambasere said it was generally too high and it mirrored exchange rate volatility.

As a result, she argued dollarisation was the way to go.

“The informal sector has not been given any support to promote a safer working environment,” Mutambasere said.

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