World Bank paints glowing picture on Zim economy
ON social media, reactions to the release of the World Bank Zimbabwe Economic Update were varied.
The report, released on Wednesday, is part of a series of commentaries prepared by the global development institution that provide an in-depth analysis of the country’s economic performance, current challenges and future prospects.
Such documents are typically released twice a year, in June and December.
In its latest account, the bank paints a largely glowing picture of Zimbabwe’s economy, focusing on its resilience in the face of a global downturn and how it has witnessed a strong rebound since the Covid-19 pandemic.
Crucially, the World Bank concludes that Zimbabwe grew faster than its regional peers in 2022.
It also forecasts potentially perilous headwinds emerging from a rising public sector wage bill and increasing public debt driven by external arrears and legacy debt.
Reactions to the report orbited around palpable excitement, presumably from those inclined to optimism, to forlorn rage from the perennial cynics.
“This is beautiful; Zimbabwe is on the rise. This is a good story to tell. A giant is rising!” observed one Sthamber on X.
Others were indifferent and dismissive. “This is propaganda,” one Zhowezhowe wrote on the platform, formerly known as Twitter.
But what exactly did the report say about Zimbabwe’s economy?
Growth
According to the World Bank, economic activity in Zimbabwe has accelerated despite challenges affecting the global economy.
“Zimbabwe was one of the fastest growing economies in the Southern African Development Community (SADC) in 2021, 2022 and, so far, also in 2023,” reads the report.
“The economy grew by 6,5 percent in 2022, down from 8,5 percent in 2021, but still higher than in many SADC economies.
“In 2023, economic growth is estimated at 4,5 percent.”
The bank notes that the growth was driven largely by expansion of the agriculture sector due to abundant rains and resilience-building.
The agriculture sector has witnessed significant growth in recent years, defying previous trends.
Experts have cited Government’s emphasis on achieving food security by driving investments in irrigation, storage facilities and research, and improving agricultural resilience by climate-proofing food production as one of the reasons for the sustained growth.
The adoption of new technologies for improved seeds, drought-tolerant crops and precision agriculture practices has led to increased efficiency and productivity.
In addition, the crowding in of the private sector has played a growing role in the agriculture sector through investments in processing, distribution and marketing, creating jobs and adding value to agricultural products.
Hwange Unit 7 was successfully synchronised in March
“The easing of Covid 19-related restrictions further supported economic activity, particularly in the tourism sector,” said the bank.
“Meanwhile, elevated commodity prices in 2022 and 2023 supported a resurgence in mining sector output.”
The World Bank notes that global disruptions have encumbered the pace of growth in the country.
“Yet, shocks from the war in Ukraine, supply chain disruptions, economic volatility and power shortages have kept Zimbabwe’s economic activity below its potential for both 2022 and 2023.
“The economic rebound since the pandemic has helped to bring down the levels of poverty and food insecurity.
“On the back of the economic recovery and record maize harvests in the 2020/2021 agricultural season, the extreme poverty rate
fell by 6 percentage points to 43 percent in 2021 and then to 42 percent in 2022.”
It notes that food insecurity rates have also dropped significantly.
Macro-economic stability
The World Bank also noted that inflationary pressures have eased, while the exchange rate has stabilised, indicating progress towards fiscal discipline and market confidence.
Stabilisation measures put in place by the Reserve Bank of Zimbabwe (RBZ) have helped bring down inflation and parallel market rates.
“Yet since June 2023, the RBZ has been proactive in tightening monetary policy; increasing reserve requirements for the banking sector and raising the bank policy lending rate,” the report reads.
“Furthermore, reserve money growth was curbed by issuing non-negotiable certificates of deposits (NCDs) and gold-backed digital tokens to absorb excess Zimbabwe dollars.
“This has helped to bring down inflation and the parallel market premium.”
Among the measures introduced to stabilise the Zimbabwe dollar was the introduction of the willing-buyer willing-seller foreign exchange system.
The system allows market forces to determine the exchange rate through formal channels, potentially reducing speculation and opaque currency trading.
The central bank also increased rates throughout the year, aiming to discourage borrowing and reduce excess liquidity, which could fuel currency depreciation.
The authorities also enhanced value-formoney audits, which entail scrutinising Government spending to ensure fair pricing to reduce excess liquidity and potentially lessen pressure on the currency.
Government also introduced measures to promote the use of the Zimbabwe dollar, including directing its departments to collect fees in the local currency and taxing foreign payments to incentivise the use of the Zimbabwe dollar, potentially boosting its value.
Headwinds
For much of the year, power supply had stabilised significantly.
This was thanks to the successful synchronisation of Units 7 and 8 at the Hwange Thermal Power Station in March and June, respectively.
However, the scourge of power outages soon returned to haunt the country as the year progressed.
According to the World Bank, inadequate power supply poses one of the greatest challenges to Zimbabwe’s economic renaissance.
According to the report, the country’s power demand is expected to grow from 1 950 megawatts (MW) in 2022 to 5 000MW in 2030, on account of an expanding economy, driven by the mining and agriculture sectors.
If the Government is to achieve its targets of reliable universal energy supply by 2030, there is need for a “combined focus on strengthening the energy sector’s financial situation, improving planning and coordination and encouraging and de-risking private sector participation”.
“Electricity deficits are particularly damaging for the mining sector, given its highly energy-intensive characteristics, so that unreliable and expensive electricity supplies reduce the margins of existing operations and weigh heavily on the feasibility evaluations for expansions and new projects,” said the World Bank.
Power shortages, the bank said, significantly disrupt the agriculture and agro-processing sector by undermining irrigation, and cold chain and storage facilities.
“Tourism is also affected as hotels, resorts and tourist attractions face disruption of essential services. Overall, these effects translate into lower economic growth and lower household incomes.”
The bank estimates that power shortages could cost the country 6,1 percent of its gross domestic product every year.
The report also warns of adverse effects of the El Niño weather phenomenon on agriculture.
The bank projects economic growth to slow to 3,5 percent in 2024 due to suppressed agricultural output on account of the impending drought.
“The economy faces multiple downside risks,” it says. “Prolonged global turmoil could result in a slowdown in global output, reduced trade and investment, increased volatility in commodity prices and supply disruptions,” the report added.
“Moreover, fiscal pressures may result in an expansionary economic policy. This could give rise to increasing economic volatility, impacting on private sector activity and growth.
“Finally, climate change shocks may also serve to lower economic output, particularly in the agriculture sector.”
Economic analyst and member of the RBZ Monetary Policy Committee Mr Persistence Gwanyanya said the sustained growth of Zimbabwe’s economy will trickle down to the ordinary citizen.
“The World Bank has come up with optimistic projections that are in tandem with Government projections,” he said.
“I know the ordinary people might not have felt the growth as yet. However, this will be felt in the long run. There has been growth in the economy, in terms of the construction of infrastructure taking place across the country such as dams and roads.
“This is the growth that is being corroborated by the World Bank.”
On the power situation, Mr Gwanyanya said despite the current power deficit, the ongoing projects were a measure of progress in the sector.