Despite its significant human capital and vast resource potential, Zimbabwe’s economic development will remain dire due to a challenging operating environment, according to global research firm Fitch Solutions in its latest country risk report.
Zimbabwe has for long struggled with both internal and external risk factors, which have prevented it from reaching its economic potential given its resource base.
“Zimbabwe has significant human capital and vast resource potential, which could drive economic development”, according to Fitch Solutions.
Unfortunately, these resources are counting for nothing as they depend on fiscal and monetary policy normalisation, which has eluded the economy for long.
Despite efforts put in place by treasury and the central bank, the country’s fiscal and monetary policies are still in their infancy and volatile to give comfort to investors, both local and foreign.
While both treasury and monetary authorities have gone, at length, to bring stability and certainty to fiscal and monetary policies, they continue to come short of expectations of economic players.
One of treasury’s key decision has been to limit spending on what has been budgeted for but acts of nature and own policy missteps have resulted in spending that is outside of budget.
With no progress on clearing long standing external arrears, Government face a difficult balance of pursuing tight monetary, to reduce very high inflation, and fiscal policies to address the macroeconomic imbalances and build confidence in the currency, while averting a crisis.
Inflation reached 676 percent in March 2020 while the exchange rate has been on a free fall on the parallel market.
Pressures are also still mounting to increase spending on wages and for social protection to mitigate the impact of the weather shocks and high inflation.
While the 2020 budget includes a significant increase in social spending, it is likely insufficient to meet the pressing needs.
Nature has also conspired to worsen Zimbabwe’s plight with consecutive droughts living the country needing to import tonnes of food, maize in particular, to feed millions of food insecure households.
Fitch expects these challenges to continue “over the short-to-medium term as the country is vulnerable to factors such as adverse weather conditions, commodity price shocks, still-low industrial productivity and foreign currency shortages.”
The research firm argued that, these risks Zimbabwe face “are compounded by internal factors such as high reliance on primary sector exports, high import demand, endemic corruption, weak property rights protection, high borrowing costs and a yawning infrastructure deficit.”
In addition, according to Fitch, businesses operating in the country will face rolling electricity outages and sporadic fuel shortages, necessitating the use of alternative power sources at an added cost.
“These factors combined with volatile foreign currency availability, high input costs and rigid labour market regulations significantly lowers the country’s competitiveness relative to its Southern African neighbours, such as Namibia, Botswana and, to a greater extent, South Africa,” Fitch said.
The research firm however pointed out that improved governance and transparency, increased investment openness, and meaningful re-engagement with multilateral lenders and the international community, could boost economic development “in the years ahead.”
“Zimbabwe has significant human capital and vast resource potential which could drive economic development, contingent on fiscal and monetary policy normalisation.
“The latter is intrinsically tied to improved governance and transparency, increased investment openness, and meaningful re-engagement with multilateral lenders and the international community in the years ahead.”
Fitch Solutions is an industry-leading provider of credit, debt market, and macro intelligence solutions, and the primary distributor of Fitch Ratings content.