That Zimbabwe’s economy will this year contract is inevitable.
The question is by what margin and what will it take to save it from collapse.
The International Monetary Fund (IMF) projects that the economy will shrink by 7.4%. One of Zimbabwe’s leading investment firm, Imara Capital, also painted a gloomy outlook on the economy post Covid-19.
The company sees Zimbabwe’s economy contracting by double digit figures. In its quarterly report the company said Zimbabwe has few policy options post Covid-19.
The huge premium between the official exchange rate and the parallel market rate of 1:50 has over the past few weeks pushed the cost of living beyond the reach of many.
This, prompted authorities to demand a price freeze on basic authorities. We have been there before. In 2007, under a Command economy, Zimbabwe set price controls.
Goods vanished and the rest is history. With business already signalling distress calls—some may fold while others many scale down operations—Zimbabwe’s fragile economy will emerge bruised after the pandemic which has claimed tens of thousands of lives across the globe.
Curiously, Finance minister Mthuli Ncube is keeping his cards on his chest on what measures government could put in place.
Business organisations like the Zimbabwe National Chamber of Commerce contend that local firms are in need of debt restructuring and re-negotiations on property rentals to extricate themselves from the aftershocks of the Covid-19 pandemic.
The best antidote for the economy, the chamber reckons should be three-phased. It should include tax reprieve, ring-fencing the intermediate transaction tax and debt relief, business would wish.
But for a government already struggling to finance social spending during this critical moment, making any concessions that could result in a massive decline in revenue.
Across the border, the South African government announced that members of the executive would take a 30% cut on their income.
On the political front, the circus goes on. Confusion reigns supreme within the opposition on which course of action to take. At the start of the year, there was renewed hope that political dialogue between President Mnangagwa and opposition leader Nelson Chamisa would begin.
Zimbabwe’s problems are more political than economic.
As Imara Capital observed, the last time Zimbabwe’s economy was on the rocks was back in 2008 when inflation officially reached 231 million percent. The socio-economic crisis led to a coalition government between Zanu PF and two MDC formations.
The inclusive government stabilised the economy and some political reforms such as the crafting of the new Bill of Rights were made.
Going forward, Zimbabwe needs an internal solution built on mutual trust to address the myriad of challenges buffeting the economy.
Mnangagwa who leads a party with two thirds majority in Parliament faces one of his greatest tests of statesmanship.