Zimbabwe – Under Pressure to Obtain Results

Officials had hoped that the introduction of a new currency, the RTGS, supported by a $500 million loan from the Afreximbank would create a path to economic stability, but the exercise has proven to be another failed attempt to restore market confidence. Substantial devaluation on the parallel market has led to worsening inflation, and shortages of fuel, medicines, and other essentials have generated a public backlash that creates an opportunity for the opposition MDC to create serious problems for President Emmerson Mnangagwa and the ZANU-PF government.
Positively, the government has reached an agreement with the IMF on a staff-monitored program. Although Zimbabwe will receive no financing, the regular quarterly reviews scheduled under the agreement and the advice of experts may facilitate the implementation of reforms that could bolster confidence, to the country’s economic benefit.
However, the heavy centralization of state control, the militarization of politics, a culture of entitlement within ZANU-PF, and disagreements of monetary and fiscal policy will pose obstacles, and financing difficulties create a risk of a setback in the ongoing process of compensating white farmers for land seized by the government under former President Robert Mugabe, the successful completion of which is essential if Zimbabwe is to have any chance of full international rehabilitation.
In May, the government indicated that the promised sale of state assets that account for a mere 2% of GDP but carry a combined total of some $500 million in debt will proceed over the second half of 2019. Among the companies slated for partial privatization are telecoms operators NetOne, TelOne and Telecel, the People’s Own Savings Bank, Zimpost, Petrotrade, and subsidiaries of the Zimbabwe Mining Development Corporation. While the government certainly has a strong incentive to reduce the drain on the treasury, it is an open question whether the assets on offer will attract the interest of investors.
The economy will contract in 2019, following two years of solid growth, and inflation will average close to 70%. The near-term economic outlook is further clouded by low rainfall that is contributing to power shortages, necessitating rolling blackouts that are causing problems for mainly smaller producers. Despite further expenditure cuts, the fiscal deficit will remain fairly large, at a targeted 4% of GDP, adding to a mounting public-sector debt burden that is compounded by liabilities associated with land compensation.
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