IMF drops Zim growth forecast as drought bites

Memory Mataranyika

Harare - The International Monetary Fund (IMF) on Wednesday lowered Zimbabwe's economic growth outlook for this year to 1.5%, as headwinds in China and South Africa worsened the country's economic prospects.

The IMF attributed its decision to weak revenue from exports, compounded by persistently softer commodity prices and drought conditions.

There are concerns of a slowdown in China, the world’s second-largest economy. Asian, European and other global markets have taken a knock from this, with declines in most emerging market currencies such as the rand threatening regional economic growth prospects.

South Africa and China are Zimbabwe’s major trade partners after a freezing of relations with Western countries over President Robert Mugabe’s controversial land reform policies and alleged human rights abuses.

Zimbabwe’s export sector largely consists of minerals and agricultural products, but lower commodity prices and drought have affected earnings from agriculture and mining.

"We expect a slowdown in economic activity as a result of drought as well as low prices for Zimbabwe's exports," Domenico Fanizza, the head of an IMF mission currently in Zimbabwe, said on Wednesday.

Previously, the IMF had said Zimbabwe’s economy would grow by 2.8% this year. The government has also lowered the country’s growth outlook to 1.5%, as the economy continues to struggle amid declining productivity.

Zimbabwe's Finance Minister Patrick Chinamasa said earlier in the week that the country would ramp up mining output to counter weaker commodity prices. Zimbabwe is rich in mineral deposits ranging from gold, platinum, chrome and coal to diamonds.

The IMF has urged Zimbabwe to institute policy reforms to improve the operating and regulatory framework. This would help attract foreign investment and ensure that any funding assistance goes into crucial infrastructure and other development areas.

Zimbabwe has a debt overhang of about $10bn, most of it owed to international lenders. The government is seeking debt rescheduling as part of its re-engagement efforts with multilateral financiers. Fanezzi said Zimbabwe has made progress in its re-engagement with creditors.

Although Western investors have largely stayed away from Zimbabwe, African investors have kept faith in the country's longer-term prospects. South African companies such as Impala Platinum [JSE:IMP], Pick n Pay [JSE:PIK], Standard Bank [JSE:SBK] and Tiger Brands [JSE:TBS] among others maintain their investments in the country, even sinking more funds into expanding projects.

Last week, Nigerian billionaire Aliko Dangote visited Zimbabwe for investment deals in mining, cement manufacturing and power generation.

However, experts have urged the country to ease investment processes and restore certainty through clarifying legislation such as indigenisation.