HomeAnalysisCeteris Paribus: The state of the economy

Ceteris Paribus: The state of the economy

Eben Mabunda
TREASURY’S gross domestic product (GDP) growth target of 5,5% for 2022, will likely prove elusive as the nation is reeling from a multitude of endogenous and exogenous macro-economic challenges.

This could reverse 2021’s gains where Zimbabwe’s GDP grew 7,4% bolstered by strengthening commodity prices and a positive agricultural outturn.

Exogenous —The Russo-Ukrainian conflict has taken a toll on the global economy as it has brought about supply chain disruptions impinging on fuel, raw materials and food supplies. African economies have not been spared, as they have suffered economically registering among others, high inflation. Ghana recorded an 18-year high inflation to 27% in May, while Kenya registered 7,1% and South Africa 5,9%, 0,1 below its 6% target ceiling.

Below are the endogenous  factors:

Local currency —The Zimbabwean dollar plummeted to 338,49 against the United States dollar on the latest auction market held on Tuesday. This widened year to date (YTD) losses to circa 70%. The local unit resumed trade on the auction market in January trading at 112,8 against the US$. However, due to flip-flop policy announcements and command economics, the currency failed to attain any stability whatsoever. With paltry US$ reserves, the currency is acceding to inflationary pressures amid fears of a 2008 script replay.

The latest Foreign Currency Account (FCA) balance figures rose from US$1,83 billion to US$1,94 billion – a 2022 FCA peak fast-approaching an all-time high of US$1,95 billion recorded in December 2021.

Trade — According to the latest Zimstat external trade data, Zimbabwe’s imports and exports have made moderate monthly fluctuations between January-April 2022.  Exports in the four months were valued at US$2,13 billion while imports were worth US$2,61 billion leaving a US$486,39 million trade deficit in the period under review. Notably, April’s deficit comes as the lowest in 2022 at US$49,91 million a sub-US$50 million low last seen in November 2021. On the import front, just over 16% of January-April’s imports were spread across diesel, petrol and electrical energy – Zimbabwe’s top imported products in the period and collectively cost US$421,9 million.

According to Rugare Mukanganga, head of economic research at Equity Axis; “Bearing May 2022’s basic commodity import levy relief as well as the pro-mobility resolutions recently instituted to facilitate more affordable public transport, we anticipate a steady growth in the national import bill – thereby dampening April 2022’s new-found trade deficit lows.”

Inflation — Zimbabwe’s headline inflation grew from 96,34% to 131,74% between April-May this year, while month-on month outturn rose to 20,97% up from 15,55%- Zimstat figures show.

“While immediate market intervention may appear unnecessary, we anticipate a renewed need for it in the months ahead as broad money restarts its spiral post commercial bank loan suspension cancellation,” Mukanganga said.

Reserve money — Having peaked at ZW$29,24 billion in the first week of May this year, the latest RBZ data noted a 0,10% decline in Reserve Money (RM) for the week ended May 13 2022. At ZW$29,21 billion, RM remains concerningly high and despite its relatively stagnant movement since mid-April 2022, RM does not appear to be heading south yet. RM growth targets have been revised several times in recent years, from 10% per quarter in 2020 down to 10%, 7,5%, 5% and eventually 0% as of May 2022. Looking ahead, no further hikes in interest rates from the current rate of 80%, are envisaged by the Apex Bank.

Conclusion — Looking ahead, the ZWL’s increased freedom to fluctuate will be a key driver of inflation in the months ahead, leaving USD prices as a more stable benchmark for general economic activity and discouraging the interest and use of the ZWL as a medium of exchange.

  • Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net

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