Zim headed for a strong 2020 finish

16 Oct, 2020 - 00:10 0 Views
Zim headed for a strong 2020 finish The International Monetary Fund

eBusiness Weekly

Misheck Ugaro

For athletics fans that follow marathon champions’ finishing techniques, one of the most favourite techniques is the so called run through. In this type of finish the athlete, without keeping the consideration of the finishing point, reaches the destination with full speed as it is.

Is this how the Zimbabwean economy is poised to cross the line come December 2020?

Under the theme “Gearing for Higher Productivity, Growth and Job Creation”, the 2020 National Budget emphasised on growth stimulation and employment generation through promotion of productive oriented investment and productivity, without losing focus on fiscal responsibility.

However, Covid-19 set in and resulted in a national lockdown that directly took away any growth prospects. The pandemic has affected the global economy with Zimbabwe not being spared.

The originally planned 3 percent economic growth is therefore expected to be missed with the out turn now forecast at a contraction of 4,5 percent against an IMF projected contraction of 10,4 percent.

This expected out turn defies odds against a pandemic global contraction of major proportions.

The stronger than anticipated finish is epitomised by an improving macro-economic environment with a budget surplus reported as at half year June 2020 of $300 million and projected to continue until end of the year.

This surplus is a buffer against unexpected external shocks that might occur.

As the country enters the final quarter of the year, the local currency has continued to stabilise and held on steadily at around $81,3:US$1.

This has resulted in inflation declining with the month-on-month figure for September shedding off 4,61 percentage points to 3,83 percent from the previous 8,44 percent in August.

The annual figure tumbled by shedding off 101 percentage points to 659 percent over the same period.

The month-on-month blended inflation for September is a negative 0,47 percent compared to 1,41 percent the previous month while the annual blended inflation for the same period stood at 376 percent.

The above performance augurs well for a stronger than expected finish for the year.

The emerging stability has been centred on several factors that include the introduction of the foreign currency auction trading system, maintenance of fiscal discipline as epitomised by the surplus indicated above on the treasury side, which supported a tight monetary policy stance.

While players have maintained doubt over the sustainability of the auction system, the performance of the external sector has provided enough confidence with an improving trade balance position as shown in the graphs on the right.

As a result, the projected annual inflation is consistent with reducing the month-on-month inflation from 31,7 percent in June 2020 to around 5 percent in the last quarter of 2020.

The IMF now projects annual inflation to be 495 percent while the Ministry of Finance maintains that it will be around 300 percent.

Going into 2021 economic performance is expected to turn up with stable inflation further declining to single digits while economic growth is forecast to jump to 7,4 percent before steadying at around 5 percent from 2022 onwards.

Misheck is a former expatriate banker once based in several SADC countries and currently works as a Corporate Advisory Services Consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is a member and past Vice President of the Zimbabwe Economics Society.

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