Zimbabwe's Finance minister reveals economy near collapse with 20 percent contraction expected

01 Mai 2020

Harare, Zimbabwe, May 1 (Infosplusgabon) - Zimbabwe’s economy is expected to contract by a whopping 20 percent this year as it barrels towards economic collapse, a leaked government letter shows.

In the letter dated April 2, 2020 addressed to the International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, by Zimbabwe’s Finance minister Mthuli Ncube the southern African nation’s economic woes are now at a tipping point.

Last month, IMF projected an economic contraction of 7.4 percent for Zimbabwe this year from 2019's -8.3 percent.

“The Zimbabwean economy contracted sharply in 2019, amplified by climate shocks that crippled agriculture and electricity generation. Growth is projected to contract further in 2020, with domestic demand expected to be significantly depressed from the lockdown put in place as a preventive measures to stop the spread of the virus,” Ncube said.

“Cumulatively, Zimbabwe’s economy could contract by between 15 to 20 percent during 2019 and 2020 – this is a massive contraction with very serious consequences. Already, 8.5 million Zimbabweans (half of the population) are food insecure, from Cyclone Idai and successive droughts, health services are inadequate, and poverty levels are rising. These indicators are expected to worsen.”

He added: “The Zimbabwean authorities propose a high-level dialogue on mitigating the economic and social downfall from COVID-19 pandemic through transformative arrears clearance and re-engagement plan; short of which the country will suffer a health and economic catastrophe”.

Based on government loans taken to date, from Zimbabwe's Treasury, the country owes US$11.5 billion to international financial institutions (IFIs) with the main ones being Afreximbank, World Bank Group (WBG), African Development Bank (AfDB), and the Paris Club.

This debt has prevented Zimbabwe from accessing fresh lines of credit, hence, the letter by Ncube to the IMF also copied to other IFIs requesting for debt restructuring or cancellation.

Accessing fresh lines of credit would help the Zimbabwe government kick start the comatose economy that is experiencing significant depressed demand from hyperinflation, driven by a failing Zimbabwe dollar (ZWL).

The devaluing local currency is also eroding business and personal income.

Apart from the devaluing ZWL, increasing shortages of foreign currency, electricity, employment opportunities, fuel, and water are also hammering the economy hard.

Further, domestic and international COVID-19 measures along with rising climate change have significantly dented the economy.

“The Zimbabwean authorities duly acknowledge their responsibility for the recent policy missteps during the late 2019. At the same time, the global pandemic will make it even harder to balance the policies needed to restore macroeconomic stability with those to address urgent social needs,” Ncube said.

The policy missteps refer to reintroducing ZWL in June 2019 un-backed, rising government subsidies on agriculture and fuel that is raising government expenditure as well as excessively increasing the money supply to spend.

As such, socioeconomic continue to rise.

“Given the existing harsh economic environment, there is very limited fiscal space to accommodate the higher spending needs,” Ncube said.

“In absence of external financing, the budget deficit will have to be financed domestically, which drastically increase inflation (currently over 500 percent year on year) and destabilise the exchange rate. Such financing would be counterproductive to our key objective of establishing macroeconomic stability.”

In a shocking admission, contained in the letter, the President Emmerson Mnangagwa-led government recognised that requesting for arrears clearance and debt rescheduling given the policy missteps during late 2019 was a lot to ask.

But, Ncube promised that government would commit to a list of economic and political reforms since the two are tied together.

Economic reforms include a market driven exchange rate, eliminating quasi fiscal operations and lending schemes at the Reserve Bank of Zimbabwe as well as incorporating all subsidies in the budget for transparency.

Ncube further proposed to contain money supply, table a pro-social spending Mid-Term 2020 Budget and limit fiscal costs of subsidies.

In terms of political reforms, Ncube mentioned how the Public Order and Security Act (POSA) had been repealed and that the Access to Information and Protection of Privacy Act (AIPPA) would soon follow suit.

POSA gave untold powers to the police while AIPPA severely curtailed media freedoms.

While the repeal of POSA and the planned removal of AIPPA have been commended, several media watchdogs such as Media Institute of Southern Africa Zimbabwe have complained that the new Maintenance of Peace and Order Act issued last year is even more repressive.

Other political reforms promises include “issuing a time-framed programme of aligning all national laws to the 2013 Constitution; providing a time framed programme for the omnibus Bill on Electoral Reforms, including setting up of a Parliamentary Over-Sight Committee to implement the reforms before the constitutionally mandated next general elections; continuing with the process of engaging in National Dialogue”.

Zimbabwe's main opposition, Movement for Democratic Change (MDC) Alliance has largely stayed away from the national dialogue accusing it of being biased to government.

The World Bank Group estimates a financing gap of US$1 billion in 2020 for spending on Zimbabwe's health, education, food security, and social protection. Of this amount, about US$200 million is needed for unplanned COVID-19 expenditures.

“A mere 889 days after he took over, Emmerson has taken this country to depths unknown and a path hitherto untravelled. @MthuliNcube's letter of 2 April to the IFIs, with the shocking revelation that 2020 GDP could be as low is -20% is the biggest admission by regime that it has failed,” said former finance minister and current Harare East legislator Tendai Biti on Twitter.

“The regime in @MthuliNcube's letter accepts our position (MDC Alliance) that self-induced crises is huge and “could cause an implosion of the state and threaten security in neighboring states”. Truth is the Zimbabwe crisis is political and requires a political solution. Illegitimacy must be dealt with.”

Biti is one of the three Vice Presidents in the MDC Alliance.

United Kingdom based scholar, Alex Magaisa said that in nutshell, the Finance Minister’s letter paints a gloomy picture of a broken nation facing desperate times, a picture that Ncube and government often do not present to the nation.

"The admissions of missteps are a far cry from the self-adulatory statements of surplus and other phantom successes during the course of 2019. The government may fool its supporters and the gullible, but it can’t maintain this show in front of experts who can easily tell when someone is waffling," he said.

FIN/ INFOSPLUSGABON/MPO/GABON2020

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