Russian-Ukraine war shocks Zim

LIVINGSTONE MARUFU

A senior World Bank official has warned that the price of fertiliser and food in Zimbabwe is set to increase sharply due to the global impact of the protracted Russia-Ukraine war that has gone on for over a year now.

Speaking at the recently ended Confederation of Zimbabwe Industries (CZI) economic outlook symposium, World Bank senior country economist for Zimbabwe, Stella Ilieva told delegates that the local economy will remain subdued as it continues to experience substantial losses in output and investment.

“Price of food and fertiliser is expected to make a sharp increase due to the impact of the Ukrainian war resulting in high import bill thereby putting pressure on the already constrained fiscal space,” she said, adding that overall, the country’s economic growth remained subdued.

“Risks for food insecurity remain elevated amid rising borrowing costs,” Ilieva said.

The World Bank said the multiple downside risks to the global outlook include persistent inflation, unanticipated monetary tightening, financial stress, geopolitical turmoil, crippling energy challenges, food insecurity, social tensions, climate-related risks, Covid-19 outbreaks, weak global growth and fragmentation of world trade, investment and financial networks.

“With Zimbabwe being an emerging economy, it will not be spared from these global economic shocks which will pile on top of the multifaceted challenges that Harare is already facing,” Ilieva said.

She projected the Zimbabwean economy to expand by 1.4% this year from the earlier forecast of about 2% amid a growing sharp global downturn and high inflation expectations.

Harare will not be spared from the current global economic shocks such as the Russia-Ukraine conflict and the Covid-19 pandemic, the Bretton Woods institution said.

“The local economy is expected to grow 1.4% in 2023 before growing to 1.8% in 2024 due to multiple downside risks and worsening terms of trade are likely to have a dampening effect on growth in commodity exporters and in Zimbabwe,” Ilieva said.

PHI Commodities operations director, Graeme Murdoch, said output will be subdued due to high input costs.

“The country’s maize output is expected to be at 1.6m metric tonnes against the anticipated 3m tonnes amid the rising cost of production emanating from high input costs,” Murdoch said.

Zimbabwe is projecting the economy to grow by 3.8% this year, despite economic headwinds and global shocks.

CZI president Kurai Matsheza said the 3.8% is achievable if the authorities address the problems if ZWL$ inflation is reduced to below 30% and sustained at those levels for the year without the protracted upward trends before policy corrections”. This, Matsheza said, will feed inflation expectations in the right direction and increase business confidence.

“If the exchange rate management eliminates the parallel market premium, arbitrage, and distortions then the environment will be more profitable with minimal risk to lose value,” he said.

Reserve Bank of Zimbabwe governor John Mangudya said global chocks remain a threat to the local economy.

“Global growth of 3.4% in 2022 expected to slow to 2.9% in 2023 due to Russian-Ukraine conflict, tight monetary conditions, global supply chain disruptions, and international commodity prices are moderating and this will have an effect on the local economy.

“The global inflation developments and policy responses are in sync with what the Bank is observing and doing in the domestic economy,” Mangudya said.

He said the central bank was witnessing continued domestic economic resilience despite fragile global economic growth, elevated consumer demand supported by increased foreign currency receipts, including diaspora remittances, and robust domestic production as evidenced by the continued availability of locally produced goods.

The central bank chief said there was a high and sustained manufacturing capacity utilisation at over 60%, normalisation of pricing behaviours as inflation recedes and attainment of an optimal mix in the dual currency system increased appetitive for value preservative savings instruments, that are, gold coins with no sales to date after maturity of the initial holding period and continued financial sector stability to support recovery and growth of the economy.

In the outlook, the World Bank advised RBZ to tighten policy to the extent needed to ensure inflation expectations are well anchored, communicate policy actions clearly and safeguard central bank independence, curtail inefficient spending while providing targeted support to vulnerable groups, and broaden the tax base and improve tax administration.

“Improve public spending efficiency, reallocate spending towards priority investments, improve governance frameworks and business climate to foster private investment and facilitate trade and global value chain integration and digitisation to attract private investment.

“Promote financial inclusion, establish flexible social protection systems to support vulnerable groups during major shocks, reduce food insecurity by avoiding market distortions and pursuing investments in agricultural research and development and diversification of food sources,” Ilieva said.