Zimbabwe

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENt

Recovery continues despite persistent challenges

Activity rebounded in 2021 and 2022 after two consecutive years of recession precipitated by shocks associated with Cyclone Idai, drought, followed by the Covid-19 pandemic. The upturn was supported by higher agricultural harvests and mining activity (~80% of exports for the latter, including 47% of gold and nickel). A moderate extension of the trend is expected in 2023, with the drivers still being household consumption and mining exports. In the first half of the year, an expansionary fiscal policy in the run-up to the elections and a transitory slowdown in inflation should allow consumption to rebound. The effect on growth should, however, be mitigated by the rise in imports linked to the weak manufacturing base. Already plentiful the previous season, the autumn 2022 harvest marked a strong increase in wheat production, thanks to a 10% increase in arable land under cultivation. This should benefit the two-thirds of the population who are dependent on agriculture. In December 2022, stocks of maize, a staple food, represented 12 months of consumption. However, food insecurity is not expected to wane (26.6% of the population concerned in January 2023, according to the WFP) owing to high international prices and the reluctance of farmers to deliver their harvest under unfavourable conditions.

The overall outlook for investment remains negative. Falling commodity prices in the first half of the year, albeit still high, and election-induced fears of instability are all unfavourable factors in the short term. In addition, the long power cuts are expected to shorten only slowly. Indeed, the commissioning of two thermal power stations at Hwange in early 2023 for 600 MW will be offset by the durably low level of the Kariba hydroelectric dam lake shared with Zambia on the Zambezi. However, having ploughed USD 4 billion into the Karo mine near Harare since the investment was announced in 2018, the Karo project is expected to start mining new veins of chrome this year and platinum by 2024. Benefiting from new mines as well as a slight reduction in smuggling, official mineral exports are expected to rise from USD 2 billion before 2022 to USD 8-10 billion by 2023. At the end of December 2022, Zimbabwe introduced export controls on lithium in an attempt to attract foreign industry to invest in local processing.

Difficult access to international finance

No major economic reforms are expected before the general elections due in the summer of 2023. In this election year, the government is expected to increase civil servants' salaries (8% of GDP). The apparent success of the support measure to agriculture through the distribution of fertilisers in 2022 might encourage the state to continue this policy, notably to secure food supplies. The public deficit will remain low, however, because of the difficulty of financing it other than by recourse to the domestic market and Afreximbank. The government does not seem to have introduced any additional measures to deal with inflation and revenues will improve with growth, while public investment in transport and energy will probably be limited. Potential creditors are wary of the country’s very high, unrestructured debt and a narrow tax base (16% of GDP) which is squeezed by smuggling that reduces customs revenues, especially given that the IMF only agreed to a "food crisis" line of credit in autumn 2022 owing to arrears against it and other multilaterals. A quick resolution of the debt crisis seems unlikely as no amicable agreement has been reached on external arrears, even for institutions such as the World Bank and the AfDB.

Since 2019, and again in 2023, the current account is expected to be in surplus. It will be driven mainly by expatriate remittances, which maintain a positive balance on the transfer account. The surplus will continue to shrink, however, due to an increase in imports of goods and services in response to pre-election stimulus packages, as well as a decline in the price of metals and minerals (~30% of exports in 2021). The primary income account will remain in deficit due to profit repatriation by foreign companies. Despite the current account surplus, the external position is fragile due to low capital inflows and clandestine outflows. Although the SDR allocation has helped rebuild foreign exchange reserves, they remain very low (less than 2 months of import cover). The central bank will maintain its restrictive policy at least until the elections, which, combined with deficit non-monetisation, should ease the depreciation of the local dollar and inflation in H1. This, together with the issuance of gold coins, will reduce but not stem inflation.

2023, an election year, sees increased risk of instability

President Emmerson Mnangagwa came to power following the November 2017 “military-assisted transition” that forced Robert Mugabe to resign after more than 30 years in power. Despite his victory and that of the Zimbabwe African National Union-Patriotic Front ZANU-PF (in power since independence) in the 2018 general elections, Mnangagwa continues to be weakened by a tense social and political climate. Underscored by recurring economic crises, tensions could escalate in the run-up to the 2023 presidential and parliamentary elections. Although economic conditions are expected to continue to improve in 2023, protests and strikes are likely to continue. Nevertheless, Mnangagwa and ZANU-PF, wielding control over the main levers of power and their reliance on rural communities (70% of the vote in 2018), are best placed to win. A disrupted electoral process would slow down the international re-engagement strategy.

Last updated: April 2023