Finance and Economic Development Minister, Mthuli Ncube, could be forced to further cut this year’s economic growth projections due to unprecedented crippling headwinds, Business Times can report.
In his mid-term fiscal policy statement, Ncube revised the gross domestic product (GDP) growth projection for this year to 4.6% from 5.5%.
But, speaking at the Confederation of Zimbabwe Industries congress last week, Ncube hinted he could be forced to further cut the projections.
The fragile economy is battling volatile exchange rate, rampant inflation, crippling power shortages, low aggregate demand and low output.
“…Work is underway to review the GDP projections. There are downside risks to this (4.6%) projection which include global developments and domestic factors,” Ncube said.
He said the domestic economy has not been insulated from global imported inflation as well as disruptions on supply chains.
The Treasury said the economic growth has also been weighed down by reduced output from the 2021/22 agriculture season.
Multiple economists said the 4.6% economic projection was likely to be difficult to meet.
“We had a poor agricultural season in terms of yields and output due to drought. There was also an assumption that the exchange rate was going to be stable which was going to foster growth as there was going to be proper planning in terms of finance and cash flows. But, this did not happen and this is why we are reviewing downwards,” economist Gift Mugano said.
“At that point when the finance minister presented his budget the exchange rate was at around ZWL$85:US$1 in November last year. But now the exchange rate is hovering around ZWL$604:US$1. This means there is no stability in the exchange rate hence planning will be difficult.”
Added Mugano: “With exchange rate running away, aggregate demand falling and incomes eroded it will be difficult to achieve the projection. Even if you go to the shops very few are pushing full trolleys therefore we can’t expect the economy to grow when the sales are not performing.”
Mugano said directives such as suspension of lending left a deep cut in the economy, which will take years to recover from as this deterred potential investors.
“This left a mark to the extent that those who give lines of credit will say we will come back after elections as this may be seen as panicking ahead of elections. It will become a permanent shock as it will cut back on supply lines which should be fuelling the economy,” he said.
Mugano said if the adverse impact of the Russian-Ukraine war is to be factored in, the growth will be limited as the prices of food increased by 60% and the fertiliser prices more than doubled to make things more expensive.
“We are in for a ride as far as economic hardships are concerned and if the GDP is to grow it will be minimal,” he said.
The call comes as the Zimbabwe Electricity Transmission and Distribution Company has announced a crippling load shedding schedule, which could hamstrung economic activities and industry performance.
Another economist, Christopher Mugaga said: “As we speak, there are some areas, which have gone for more than 24 hours without electricity. This severely affects production and is very costly to many businesses, hence reduced production will have an impact on GDP growth.
“We all know that we premise our GDP growth on the agriculture performance hence the poor agriculture season disrupted supply chains. If agriculture coughs like it did we feel it.”
Added Mugaga: “We mainly depend on minerals as far as forex is concerned but with China and other global economies not growing as fast as they should be due to disruptions, the commodity prices are likely to go down in the short to medium term.”