BY Albert Nxumalo
Reserve Bank of Zimbabwe Governor Dr John Mangudya, Monday, projected a bright economic outlook for the country underpinned by agriculture saying the farming season “will be much better than initially anticipated due to improved rains received in January and February in most parts of the country”.
In the past weeks, most parts of the country have been receiving rainfall but weather experts say the rains are below average.
Zimbabwe is facing one of its worst droughts in generations, with almost 8 million people in desperate need of food aid, however, in his New Year message, President Emmerson Mnangagwa said the economy would rebound this year.
Presenting his Monetary Policy Statement (MPS), Mangudya said monthly inflation is forecast to close the first quarter in single-digit levels of below 5%, with the economy growing by 3%, and the exchange rate is expected to stabilise.
“The Bank is positive about the outlook of the Zimbabwean economy which is expected to grow by 3% in 2020 on account of increased international prices of key minerals produced in Zimbabwe, namely gold, platinum and palladium, and coupled by the stable foreign exchange generation capacity of the economy,” reads part of the MPS.
Zimbabwe’s troubled economy contracted by -6.5 % in 2019 inflicting untold suffering on citizens whose income was eroded.
“The Bank is also confident that this year’s agricultural outturn will be much better than initially anticipated due to improved rains received in January and February in most parts of the country,” he said.
On the exchange rate and inflation, he said, “We are confident that the Bank’s policy mix whose key ingredients are monetary discipline and an efficient foreign exchange market will be effective in stabilising consumer prices and the exchange rate. The stable exchange rate is then set to anchor the country’s disinflation programme through which monthly inflation is forecast to close the first quarter in single-digit levels of below 5%.”
According to Mangudya, the “trend would see the year-on-year inflation coming down to around 50 % by December 2020”.
“Monthly inflation consecutively declined for two months since reaching a peak of 38.8% in October 2019 to 16.6% in December 2019. The slowdown in monthly inflation was on account of the decline in non-food inflation, which more than offset the moderate increase in food inflation.”
On currency circulation, an additional amount of ZW$150 million was disbursed in the last quarter of 2019 to give a total of ZW$1.1 billion worth of notes and coins in circulation in the country as at 31st December 2019.
“This ZW$1.1 billion represents 3.2% of total banking sector deposits of ZW$34.5 billion as at 31 December 2019. Accordingly, the cash injections to date have not increased money supply and thus managing inflationary pressures”.
Despite the cash injection, citizens are still struggling to access cash from banking institutions, the governor said the central bank “will continue to gradually increase the notes and coins to the desired optimal proportion of banknotes and coins in circulation of up to 10 percent of deposits agreed by the MPC to meet cash demand. Moreover, the Bank will gradually introduce notes in larger denominations to improve efficiency and convenience to the public”.
According to the statement, food imports shrank by 33.6% to US$299.4 million in 2019, from US$451.2 million in 2018 and this according to Mangudya is attributed to foreign currency shortages, which saw the country importing US$6.6 million worth of maize grain in the first three quarters of 2019, compared to US$37 million in the first three quarters of 2018.
“Maize imports are, however, estimated to have increased by 86.2% from US$37.9 million in 2018 to about US$70.6 million in 2019. Wheat imports declined by 42.5%, from US$117.2 million in 2018 to about US$67.4 million in 2019. Similarly, rice imports slumped by 52.5%, from US$125.4 million in 2018 to US$59.6 million in 2019”.
Mangudya said the perceived country risk had a knock-on foreign direct investment.
“Foreign direct investment declined from US$717.1 million in 2018 to US$259 million in 2019,” he said.
“Similarly, net portfolio investment inflows declined significantly from US$54.7 million in 2018 to US$3.7 million in 2019, the decline in both FDI and portfolio investment was, in large part, due to heightened perceived country risk”.