HARARE – Amidst rising inflationary pressures, depreciating currency and an overall economic uncertainty worsened by lack of cohesion among government, other political players and the business sector, the International Monetary Fund (IMF) on Wednesday lowered its 2021 growth outlook for Zimbabwe to 5.1 percent.

The Bretton Woods Institution had in its July World Economic Outlook report projected the country’s economy to grow by 6%, even though the projections appeared to some, as being overly optimistic.

Unsurprisingly, government loves the narrative and is even more ambitious with its own GDP growth outlook of 7.8 percent for the year, which is an upward revision from the initial 7.4 percent target.

Meanwhile, research and analytics firm, Fitch Solutions said the country will realise economic growth of only 1.3 percent in 2021, and in the process dismissing government’s target as being “overly ambitious.”

Factors underpinning the growth outlook:

The positive growth outlook for the year from a negative growth of 4.1 percent (IMF) and an even worse -10 percent or more according to some reports for 2020, is premised on the increased agricultural output following the good rains experienced in the 2020/21 farming season as well as the boom in manufacturing and construction activities.

In addition, government is hopeful that higher international commodity prices and a managed COVID-19 pandemic (dependable on the rate of vaccination and its effectiveness) will help boost economic growth.

Lingering inflation and poor macro-economic fundamentals derail hope for growth:

The bullish growth outlook for Zimbabwe from both the IMF and government is faced with the rising threat of inflation, high rate of currency depreciation and generally poor macroeconomic fundamentals that are worsened by the toxic political environment.

The downward revision by the IMF to 5.1 percent growth is indicative of such. Even though the forecast remains on the positive side, the economic outlook for the country is largely tilted to the downside considering the issues at play on the ground.

Government through the Central Bank and the Ministry of Finance is engaged in currency wars where they have blamed everyone else but themselves for the currency crisis crippling the economy. Individuals have been arrested in the process, some corporates have been sanctioned and the threats against the alleged currency manipulators are heightened time over time.

Lack of accountability:

The RBZ which has its hand on the printing machine (amidst a high appetite for capital to finance government programmes) has not taken responsibility for the Zimdollar demise. In its view, fundamentals are in place to support exchange rate stability and has blamed “behavioral economics” for the crisis.

Giving in to the pressure:

The ghosts, that is, inflation continues to haunt the country and its flashes have prompted authorities to change course. At the beginning of the year, the government was targeting annual inflation to end the year at below 10 percent. As the year progresses, that target was revised upwards to below 25 percent as numbers, as is their true nature, dictated the course.

The government is now targeting annual inflation to close the year at between 35-53 percent.

IMF‘s own inflation projection for Zimbabwe is within government’s range at 41 percent by year-end and further down to 23 percent by end of 2022.

The IMF also sees the country’s GDP growth outlook of 3.1 percent by end of 2022 and 3.0 percent by 2023. Meanwhile, government is targeting average GDP growth of 5 percent from 2022 to 2025.

Supply chain bottlenecks and the pandemic threatens global economic growth:

The global economic recovery is also seen losing momentum due to the resurgence of the coronavirus pandemic and widespread supply chain disruptions.

The global economy is projected to grow 5.9 percent in 2021 and 4.9 percent in 2022, 0.1 percentage points lower than the 6.0 forecast made in July 2021.

“The downward revision for 2021 reflects a downgrade for advanced economies—in part due to supply disruptions—and for low-income developing countries, largely due to worsening pandemic dynamics,” IMF said in its World Economic Outlook report.

Beyond 2022 global growth is projected to moderate to about 3.3 percent over the medium term.

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