Zimbabwe rated ‘C’ with a negative outlook by Oxford economics company


RBZ Governor John Mangudya talks to Finance Minister Patrick-Chinamasa

THE consumptive nature of the Zimbabwean economy, as opposed to productive, has kept foreign reserves depressed as imports continue to outweigh exports, an Oxford economics company NKC African Economics has said.

According to their recently published Zimbabwe Quarterly Update, which pitted Zimbabwe’s key economic variables against the Democratic Republic of Congo (DRC), Malawi, Ethiopia and Swaziland, the economists said the reliance on the imports of consumer goods has left Zimbabwe with a substantial current account deficit, which is projected to average 20.9 percent of GDP during the 2015-17 period.

The update further showed that Zimbabwe’s comparative performance in relation to import cover remained weak, projected to average 0.54 months (almost 17 days) for the 2015-17 period, compared with the peer median of 2.8 months.

“Also, Zimbabwe is struggling to build reserves due to illicit financial flows,” read the report.
In terms of Zimbabwe’s debt, the economists said the total external debt was expected to average 107 percent of GDP during the three-year period under review, compared with the peer median figure of 28.1 percent of GDP.

“However, the forecast does not take into account the timing of debt forgiveness. In December 2015, it was reported that the country was in talks with China for a debt cancellation amounting to $40m.”

“With companies closing down and workers being retrenched, government revenue is shrinking and against this background, the country will be under pressure to expand its revenue collection base.”

Real GDP growth in Zimbabwe is expected to average only 1.8 percent per annum during the 2015-17 period, compared with peer median forecast of 6% per annum with mining production and tobacco farming being the main drivers of the projected economic growth.

According to the economic update, Zimbabwe’s projected GDP per capita reading of $892 during the period review is superior compared to a group median of $573.

“We expect government’s fiscal budget deficit to average 1.8 percent of GDP during the 2015-17 period and Zimbabwe’s peer countries are all expected to record budget deficits during the period under review with the median shortfall reading projected at 3.4% of GDP,” added the economists.

NKC African Economics gave Zimbabwe a “C” rating, with a negative outlook in terms of the economy, outlining Zimbabwe’s deteriorating political situation, constrained liquidity within the multi-currency system, as well as inconsistent policies putting pressure on the government’s ability to raise tax revenues as the country’s main risk factors.

They added that given the negative outlook for their rating for Zimbabwe, they expected total net-FDI to decline to $1.15bn during the 2015-17 period unless there were major reforms.

“Nevertheless, the country’s FDI will be equal to an average of 2.7 percent of GDP over the period under review, which is marginally higher compared with the peer median’s projection at 2.3% of GDP. However, the DRC’s FDI performance in the group is superior to that of Zimbabwe, at 6.2% of GDP due to the country’s mineral wealth.”

The negative outlook on the “C” rating implies that the country’s sovereign risk assessment could be downgraded to “D” and this looks inevitable in the course of 2016. The key factors likely to drive the Zimbabwean political environment toward a risk downgrade are a stagnant economy unable to generate sufficient growth to stave off social unrest, and the intensification of the bitter infighting within Zanu-PF which threatens not only party stability but general stability. The World Bank has weighed in on the key issues around Zimbabwe’s economic growth path in its Zimbabwe Economic Update: Changing Growth Patterns and warned of “economic headwinds” and the need for urgent policy reform and certainty.

The update added that the allure of Zimbabwe’s mineral resources has supported foreign direct investment (FDI) inflows over the past few years but now the industry is being challenged by indigenisation and empowerment issues, electricity shortages as well as other lingering factors constraining economic growth.

Zimbabwe’s headline deflation rate was projected to average 0.9 percent per annum during the 2015-17 period, compared to a peer median headline inflation rate of 6.8 percent per annum. This was after the country e recorded almost 14 consecutive months of year-on-year consumer price deflation during November 2014 to December 2015 as a result of low levels of liquidity and the strengthening of the multi-currency system’s buying power versus the South African rand over the past two years. FinX

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