IMF raises Zim GDP growth estimates

LIVINGSTONE MARUFU

The International Monetary Fund (IMF) has revised its forecast for Zimbabwe’s Gross Domestic Product (GDP), which was previously expected to be 3.2% in 2023, to 4.8% in 2023 due to the country’s mining, agricultural, and energy sectors.

An IMF staff team led by Wojciech Maliszewski conducted a staff visit in Harare  from October 18 to 25, 2023 to discuss recent economic developments and the economic outlook.

Maliszewski was quick to highlight the risks posed by the large premiums between exchange rates and high Zimbabwean dollar inflation, even as he praised the government’s strict fiscal and monetary policy stances for bringing about the decline in inflation and stabilization of market prices.

“Zimbabwe’s economy has continued its post-Covid-19  recovery, but enhancing its longer-term growth potential would require strong reform efforts. Real GDP is projected to grow by around 4.8% in 2023, supported by strong activity in the mining sector and—reflecting the beneficial impact of structural reforms—in agriculture and energy sectors. Growth is expected to slow to 3.5% in 2024 due to weaker global demand for minerals and a weather- related slowdown in agriculture. As external conditions worsen, the economic outlook will even more crucially depend on progress toward macroeconomic stabilisation and transformational structural reforms,” he said.

“Local-currency inflation and exchange rate pressures have abated in recent months, following significant price increases and exchange rate depreciation in the second quarter of 2023. The IMF mission notes the authorities’ recent efforts into stabilising the foreign exchange market and lowering inflation through the tightening of Zimbabwe dollar liquidity conditions. The mission welcomes the removal of surrender requirements on domestic sales in foreign currency. The announced plan for the transfer of central bank forex liabilities to the Treasury is also welcome. Nevertheless, the parallel forex  market premium is large at above 30%  and Zimbabwe dollars inflation remains high. The fiscal deficit, excluding quasi- fiscal operations, is projected at 2.3% of GDP in 2023,” Maliszewski  said.

He said key economic policy reforms identified in previous Article IV consultations remain paramount to fully restore macroeconomic stability. “First, comprehensively addressing the RBZ’s quasi- fiscal operations remains imperative to mitigate liquidity pressures and thus re-anchor inflation expectations. These measures should be complemented with an enhanced liquidity management framework, including through the use of appropriate interest-bearing instruments by the RBZ to mop up excess liquidity. Second, the consolidated fiscal stance, including quasi- fiscal operations , should be aligned with the short-term stabilization objectives. Third, there is an urgent need to accelerate the FX market reform, by allowing more flexibility in the official exchange rate through a more transparent and market-driven price discovery; removing the restrictions on the exchange rate at which banks, authorized dealers, and businesses can transact; and further minimising export surrender requirements.

“Structural reforms aimed at improving the business climate and reducing governance vulnerabilities are key for promoting sustained and inclusive growth and would bode well for supporting Zimbabwe’s development objectives embodied in the country’s National Development Strategy 1 (2021-2025),” he said.