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AfDB forecast 8,5pc economic downturn

10 Jul, 2020 - 00:07 0 Views
AfDB forecast 8,5pc economic downturn

eBusiness Weekly

Business Writer

The Zimbabwean economy will contract by 8,5 percent if coronavirus continues through to December 2020, the African Development Bank (AfDB) has said in its African Economic Outlook 2020 Supplement Report.

The year 2021 is, however, expected to turn positive. Before the Covid-19 outbreak, the regional bank had forecast the country’s Real GDP growth to reach 4,6 percent in 2020 and 5,6 percent in 2021 on condition that corrective measures were taken to stabilise foreign exchange supply and avoid excessive money creation. According to the regional bank, Zimbabwe is expected to record a decrease in production in both the mining and agricultural sectors “largely due to the outbreak of the pandemic and associated shocks and policy actions to limit the infections.”

The country is currently on an indefinite level two lockdown and is still to open up to some sections of the informal sector after some considerations.

The informal sector is a huge contributor to production and incomes and its continuous absence could lead to significant downturn in both production and income generating activities.

In addition to decreased production in both the agriculture and the mining sector, the African Development Bank (AfDB) is of the opinion that reductions in tourism earnings will exacerbate foreign exchange shortages currently bedevilling the country.

Further, the AfDB forecasts the fiscal deficit to remain above 5 percent due to the negative effects of the tax relief measures and weak business activity.

In the first quarter of the year Government managed to keep a balanced budget according to the Cumulative Consolidated Statement of Financial Performance for the first quarter to end of April 2020.

However, the tell-tale signs of failure to meet set targets started to show in April with the Zimbabwe Revenue Authority reporting that the COVID-19 pandemic has greatly affected revenue collection with targeted revenues likely to be missed. 

In April 2020 (the first month of the lockdown), Zimra’s revenues were about 6,9 percent below their target for the period, a trend that is expected to continue.

Treasury has since come to the market to raise $500 million through Treasury Bills. The first attempt was, however, unsuccessful with most bids having been rejected as investors wanted higher yields of around 50 percent, which is more than the central bank’s policy rate of 35 percent.

However, despite the seemingly evident challenges, the AfDB is of the opinion that Zimbabwe can emerge from the current health and economic crisis strongly.

The regional bank said the country’s vast natural resources and public infrastructure that is still in relatively good condition, as well as a skilled labour force gives the country an opportunity to join supply chains in Africa and increase trade within the context of the African Continental Free Trade Area.

“Coupled with policy responses to restore stability in the foreign exchange market and control inflation, the economy could modestly recover in 2021.”

A positive 3,5 percent out-turn in 2021 is forecast.

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