eBusiness Weekly
The World Bank is fully aligned on the upward direction of the country’s economic growth in 2021, but is not as optimistic as government on the level of growth, the global lender said yesterday.
However, post-2021, the World Bank is of the view that despite significant constraints to growth, economic recovery is expected to strengthen in 2022 as the adverse impacts of the pandemic subside with increased deployment of vaccines worldwide and as implementation of National Development Strategy 1 (NDS) policies bear fruit.
“Economic recovery is expected to strengthen further in 2022 with GDP growing at 5.1 percent as the deployment of vaccines intensifies and implementation of National Development Strategy 1 (2021-2025) bears fruits,” the World Bank said.
While Finance and Economic Development Minister Mthuli Ncube has remained bullish that the country will achieve a 7.4 percent GDP growth in 2021, the World Bank projects a 3.9 percent growth rate.
In her opening remarks at the launch of the World Bank’s “Third Zimbabwe Economic Update,” yesterday, World Bank Country Manager to Zimbabwe Mukami Kariuki said the global lender’s conservatism reflects the higher level of risk that is anticipated in view of negative developments such as Covid-19 and as well as price and exchange rate developments.
“You will note that we share Government and businesses’ optimism about growth prospects this year and indeed for the next two years.”
Kariuki, however, said the World Bank is more conservative in its assessment of the magnitude of the economic growth.
She also said while the global lender is pleased to see positive developments and trends emerging in 2021, sustaining this positive trajectory demands a concerted effort by all stakeholders.
The World Bank is of the view that the impact of the second wave of the pandemic in the period January to March, 2021 and uncertainty about a third and possible fourth wave could weigh heavily on the recovery of domestic and external demand.
“A prolonged pandemic, weaker global demand, and heightened macroeconomic instability could choke economic growth, increase poverty, and worsen human capital development outcomes,” it said.
In addition, the World Bank is of the opinion that despite positive steps taken to stabilise prices, inflation is expected to remain significant in 2021, “subduing efforts to stabilise and unify the exchange rate in the medium-term”.
Also seen as a risk on recovery by the World Bank is the limited access to “financing from both domestic and external sources.”
“Limited flows of Foreign Direct Investment (FDI), influenced by export retention policies and other factors, are expected to keep productivity and competitiveness low in some sectors of the economy,” according to the World Bank.
All is not lost though for the country as the global lender suggests acceleration of economic reforms and reengagement with international development partners would see growth reach four to five percent in 2021.
According to this best case scenario inflation could also return to single digits in 2022, while poverty reduction would accelerate. In 2021, inflation is expected to fall from 557,1 percent in 2020 to 86 percent in 2021.
On the to do list is for government to continue with efforts to stabilise prices through prudent fiscal policy and rules-based monetary and exchange rate policies.
Maintaining price and exchange rate stability will require the Reserve Bank of Zimbabwe (RBZ) to limit the growth of monetary supply, primarily by avoiding monetary financing and all quasi-fiscal activities, while ensuring high transparency and accountability of monetary policy, the World Bank advised.
“In addition, Zimbabwe’s recovery needs to be underpinned by policies promoting longer-term, structural economic transformation, such as reducing state interventions in the economy; lessening the regulatory burden; strengthening governance and anti-corruption; lowering barriers to regional trade integration; and removing forex retentions.
“Implementation of key policy reforms outlined in the recently approved National Development Strategy (NDS) will be a priority. Ensuring macroeconomic stability is, therefore, a sine qua non for supporting a private sector-led economic recovery and easing social conditions.”
