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World Bank bursts Zim bubble

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Projects GDP to grow below 4.3%

The World Bank has projected the economy to expand by below 4.3% this year amid rising inflation despite Zimbabwe projecting a higher GDP growth.

Zimbabwe has projected the economy would grow by 5.5% this year premised on growth in agriculture, mining, and tourism.

But the Bretton Woods institution is seeing a difficult juncture saying the economy was on a declining path.

“…. This year’s growth is expected to be lower than 4.3% due to rising inflation both globally and locally and the potential resurgence of the Covid-19 pandemic which causes the government to impose lockdowns,” senior economist Stella Illieva said.

Illieva said the widening of the official and parallel market rate was worrisome, although annual inflation had gone down to around 60% from 837% a few years ago.

Economic growth, Illieva said, remained fragile due to low levels of inflationary pressures, high indebtedness, volatility of commodity prices as well as low vaccination rate which may amplify the situation in case some new variants return.

“In line with the regional and global developments, the country’s economy will not reach pre-Covid-19 pandemic level,” she said.

Economist Joseph Mverecha said the twin evils of volatile exchange rate and high inflation are likely to subdue GDP.

“Certainly, we will not achieve the 5.5% set by the Finance and Economic Development Minister, Mthuli Ncube, which is not possible given the current problems. Inflation will surge driven by exchange rate movement, drought-related food shortages and international oil prices will deal a great blow to our economy,” Mverecha said.

Mverecha expects annual inflation to hit 84% by year-end with month-on-month inflation ending the year above 12%.

He said the fiscal and monetary policy measures were not likely to achieve much towards the desired currency and exchange rate stability, projecting an upward drift in headline inflation on the back of domestic prices that are linked to the widening parallel market premium.

“The biggest challenge with the current fiscal and monetary policies is asymmetry and the underlying lack of consistency – this has been an underlying weakness of the macroeconomic policy framework,” Mverecha said.

He said the country has limited chance of achieving internal and external balance, a definite prerequisite for achieving currency stability by dissipating inflationary pressures and getting the economy on course towards low and stable inflation.

This week the Zimbabwe dollar was trading at ZWL$130:US$1 at the formal market. But, in the black market, the local dollar was trading at between ZWL$250 and ZWL$270 to the greenback.

University of Zimbabwe economics lecturer, Moses Chundu, said Zimbabwe’s economic growth was too dependent on agriculture.

“Our growth numbers are very sensitive to agriculture performance so it’s not unreasonable to think that the current talk of a drought is likely to weigh down on these growth projections significantly,” Chundu said.

The government has since lifted the ban on the importation of grain.

“We have warned of the dangers of fronting optimistic projections anchored on a highly unstable primary sector like agriculture. We cannot continue to have macroeconomic projections that are always significantly off the mark as it does not help with planning,” Chundu said.

A persistent dry spell has raised fears of drought with experts projecting output to be reduced by half.

According to the Famine Early Warning Systems Network (FEWSNET), drought will have serious implications for the already fragile economy.

FEWSNET said typical livelihood strategies are expected at below normal levels throughout the outlook period, mainly due to the poor agricultural season and a volatile macroeconomic environment.

“The cost of living is expected to continue rising, especially as parallel market exchange rates result in above-normal price increases of goods and services. Ongoing ZWL cash shortages will likely continue to erode purchasing power as mobile and electronic money transfers are charged premium rates,” FEWSNET said.

The report said the macroeconomic situation remains volatile, negatively impacting livelihoods and access to food, especially among poor households.

The US$ remains the preferred currency of trade, and most commodities and services are charged in US$ with most poor household earnings in the local ZWL$ currency and parallel market exchange rates are applied for ZWL$ payments.

“Parallel market exchange rates are the main drivers of ZWL$ price increases in both formal and informal sectors,” the report said.

In a post Cabinet briefing on Tuesday, Information, Publicity and Broadcasting Services minister Monica Mutsvangwa said climate change was adversely impacting the agriculture sector.

Mutsvangwa said every effort is being made to ensure that no Zimbabwean will die of hunger.

“Adequate stocks of cereals are available for all needy families,” Mutsvangwa said.

FEWSNET said between June and September, households will deplete their stocks faster than usual given below-normal production and will have to rely on markets to meet their food needs.

However, incomes will be constrained by below normal expectations for crop sales, casual labour, livestock sales and vegetable production and sales.

“This reduced income, combined with high international commodity price trends and a continuation of general inflation and poor macroeconomic conditions will constrain household purchasing power and reduce households’ food access,” the report said.

The 2021/2022 season was marked by a false start in most areas of the country, followed by an unevenly distributed rainfall pattern both in space and time.

The Presidential Input Scheme supplied inputs for the smallholder farmers under the Pfumvudza/Intwasa programme, while the National Enhanced Agriculture Productivity Scheme provided support for large-scale farmers.

Contract farming from the private sector also provided inputs. Area planted to maize decreased by 1% from 1 920 541 hectares in the 2020/21 season to 1 903 669 hectares in 2021/2022.

The area planted under maize for Pfumvudza/Intwasa is 342 860 hectares which are 18% of the total area planted.

Cabinet noted that there was a general decrease in the hectarage for crops planted—tobacco (11%), sorghum (2%), pearl millet (25%), finger millet (40%) and cotton at 23%.

There was an increase in the area planted for other crops such as rice (97%), soya beans (34%) and sunflower by 69%.

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