Zimbabwe real GDP growth estimates 2012-2013

World Economic outlook - Zimbabwe real GDP growth estimates 2012-2013 : For years Zimbabwe politicians have been prone to extravagant forecasts of the country’s economic prospects, embellishing projections with references to vast unexploited mineral wealth, limitless agricultural potential and dazzling opportunities in tourism and manufacturing.

But on Thursday Finance Minister Tendai Biti injected a note of stark realism into his 2013 budget. He downgraded GDP growth estimates for 2012 from 9.4 per cent in his budget a year ago and 5.6 per cent in mid-year to just 4.4 per cent.

The outlook for 2013, with growth of 5 per cent, is “gloomy” ,he said, and “blighted by a miscellany of factors that include a deeper global outturn, the continued capital deficit, financial sector instability, and a poor business climate.”

H expects growth which averaged over 8 per cent a year since dollarisation of the economy at the end of 2008 to 2011, to recover somewhat to 6 per cent in 2014-15.

None of this comes as a surprise to businesspeople and economists in Zimbabwe who have long been sceptical of the overblown expectations of the political elite. It is not unusual for a country has gone through an exchange rate stabilisation programme – such as dollarisation – to enjoy a strong, but short-lived, economic upswing, before settling back on a lower trajectory.

Biti’s growth realism was accompanied by some grim balance-of-payments and budget numbers.

In 2012, imports have grown some 26 per cent, while exports – dominated by gold, diamonds, platinum and tobacco – have run into world commodity price headwinds, along with severe domestic supplyside constraints, especially electricity.

The finance ministry is projecting a current account payments deficit of $3.1bn in 2012, improving marginally next year. This is being funded by substantial capital inflows of $2.4bn in 2012 rising to $2.8bn in 2013. But because much of this is non-concessional, high-cost finance (including $850m from China in the last year), it will act as a brake on future economic growth, even after the inevitable debt-rescheduling agreement that Biti hopes to negotiate with creditors next year.

At the end of 2011, Zimbabwe’s external debt was 116 per cent of GDP, with arrears of over $6bn (63 per cent of GDP) and the IMF wants Zimbabwe to scale back its offshore borrowing. Indeed, this is likely to be one of the conditions of the proposed staff-monitored Programme that the government hopes to agree with the Fund by the end of this year.

The fiscal outlook is similarly daunting. A year ago Biti targeted revenue of $4bn in 2012, but mostly because diamond earnings of $600m did not materialize, he found it necessary to cut spending to $3.6bn.

Although the country exported some $560m of diamonds and is now the world’s fifth largest diamond producer, the state’s take was a mere $84m. The minister has promised to tighten up on revenue collection from the country’s notoriously opaque diamond sector, but because the key players are supporters of President Robert Mugabe’s Zanu-PF party, while Biti is Secretary-General of Prime Minister Morgan Tsvangerai’s MDC, it is far from certain that he will manage to increase diamond revenue before elections due next year. The polls are likely to spell the end of the country’s unhappy experiment with power sharing between the two main parties.

In his speech, Biti launched into campaign mode, describing Zimbabwe as a country with the potential for double-digit growth. He is not alone in this belief – World Bank bureaucrats, western diplomats and emerging market investment analysts are prone to similar flights of fancy. They may prove to be right but only when the policymakers face up to the harsh reality of securing debt relief, reducing the government’s share of GDP (36 per cent) and weaning Zimbabwe off its unsustainable consumption-driven path onto an investment and export-led one. Not to mention creating political and economic stability.

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