Reforms to pay medium, long term dividends

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ONGOING economic reforms will pay dividends in the medium to long term, says leading global economic research firm Fitch Solutions, as the measures being implemented take time to take root.

Fitch said in its July country risk report on Zimbabwe that despite strong headwinds the economy could grow 2,2 percent in 2019, but warned that increased incidence of social unrests poses threats.

“Pledged reforms have the potential to improve Zimbabwe’s business environment, and growth prospects, but only in the longer term, since measures will take some time to implement,” Fitch said.

Government is working on a cocktail of reforms that include fiscal consolidation, reducing current account deficit, increasing tax revenue, improving easy of doing business and putting in place sustainable economic policies and fundamentals.

While Finance Minister Mthuli Ncube agrees the Zimbabwean economy faces serious headwinds that will stymie any prospects for growth this year, he says measures to re-balance the economy from years of meltdown are beginning to show positive results.

The minister is on record saying that Government finances, which have seen massive deficits on the national budget, were now in healthy state as typified by primary budget surpluses since November 2018.

However, households have been hard hit by the recent economic collapse in the country.

Consumers face a myriad of issues, ranging from high inflation, to fuel shortages and limited access to stable currency.

“Over 2018, the value of private consumption contracted by 0,8 percent. We forecast this to rebound over 2019, growing by 1,1 percent year-on-year.”

An economic downslide brought on by a currency crisis, Fitch said, led to hyperinflation and widespread shortages of foreign currency and fuel.

“While economic growth will return in 2019, the recovery is set to be sluggish and government reforms, including a new transitional currency and scaling back of the public wage bill, will have negative impacts on consumer purchasing power,” Fitch said.

As Government’s reform efforts sink root, the outlook for the Zimbabwean consumer is seen remaining challenging, at least over the short term (2019, 2020).

Over the medium-term (2019-2023), Fitch said they expect economic risks to somewhat stabilise, as reforms are implemented, and this will boost growth in private consumption, albeit from a low base. Over the next five years to 2023, consumer spending is forecast to average 3,5 percent growth per year.

Zimbabwe is in the midst of a currency crisis, as the country runs structural trade deficits and remains excluded from international capital markets.

Fitch said the current currency challenges and weak economic climate had forced the majority of formal retailers to close stores in recent years.

Recently introduced currency measures have yet to stem the black market for US dollars, and restrictions on trading and exchanging the RTGS dollar remain in place.

Combined with recently re-imposed import and exchange controls, this has been detrimental to businesses and consumers, as Zimbabwe is heavily dependent on imported consumer goods.–chroncie.co.zw

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