Zimbabwe's economy: a mixed bag of challenges and ...

Zimbabwe's economy: a mixed bag of challenges and opportunities

Nyashadzashe Ndoro

Chief Reporter

Zimbabwe's economy is facing a myriad of challenges, from a severe drought that has affected agricultural production to a decline in global commodity prices.

Finance Minister Mthuli Ncube during his mid-term budget review last month revised the country's growth rate downwards to 2% from 3.5%, and the current account surplus is expected to narrow to US$44.5 million by the end of the year down from US$133.9 million in 2023.

The Minister also noted that drought has resulted in a 21% decline in agricultural production, affecting food security and water availability.

Despite these challenges, there are opportunities for growth and stability as argued by Persistence Gwanyanya, a member of the Monetary Policy Committee. The launch of the Zimbabwe Gold currency in April 2024 has been hailed as a success, with measures to support and sustain its stability.

"It is commendable that after the successful launch of a structured currency in April 2024, ZiG, Treasury, through the 2024 mid-term fiscal policy review, weighed in with measures to support and sustain the stability ushered by this currency," Gwanyanya said.

Gwanyanya added that the measures to drive demand for ZiG, including pivoting towards ZiG taxes and customs, as well as user fees by Government departments and agencies, are plausible.

"The operation of legal requirements is expected to see some fuel dealers warming up to selling fuel in ZiG as they try to raise funds for QPDs (Quarterly Payment Dates)," he said.

Gwanyanya also noted that the removal of a couple of products from exclusive foreign currency duty payments is seen as driving demand for ZiG.

"Similarly, the directive to Government departments and agencies to charge for their goods and services in ZiG unless specifically excluded by authorities, does not prop up the demand for ZiG but confidence in the currency," he said.

Renowned economist Professor Gift Mugano, however, painted a bleak picture of the economy.

"The economy is in a dire situation. The economy is going towards the graveyard. We are fast approaching 2008," he said.

Professor Mugano highlighted several key indicators that demonstrate the severity of the economic crisis.

"Contribution of IMTT to total revenue fell drastically from about 16% in 2019 to 3.4% in 2024 - signifying deepening informality and collapse of the formal economy," he said.

He also noted that the percentage of people employed in the informal sector has increased from 75.6% in 2019 to 87.7% in December 2023, signifying deepening informality and collapse of the formal economy.

"Youth unemployment is standing at 3.5 million - 3.5 million young people are unemployed. The majority of the youths are drug addicts," he added.

Professor Mugano, further, pointed out that national debt has ballooned to US$20.8 billion (ZiG287.2 billion/13.78) up from US$18.73 in 2023, a staggering US$2 billion increase.

"Close to 50% of the population is living in extreme poverty. Both the education and health sectors are in intensive care units. Close to 25% of the children under 5 are suffering from stunting growth - future generation & human capital is threatened," he said.

Chenayi Mutambasere, a Development Economist at Centre for Economic Justice, also raised concerns about the effectiveness of the measures to promote the use of ZiG.

"Mandating the use of ZiG for taxes and duties could face significant resistance, particularly from businesses accustomed to transacting in more stable foreign currencies. The effectiveness of these measures depends heavily on public confidence in the local currency, which the government needs to build through stable and sound monetary policies," Mutambasere said.

On the issue of the narrowing surplus, Mutambasere said, the issue "raises concerns about the sustainability of the country’s external position. While the review notes the decline, it lacks detailed strategies to boost exports or reduce import dependency, which are critical to reversing this trend".