The Zimbabwean Economy in 2005
After a brief attempt at real reform of the monetary and fiscal
2003, the Ministry of Finance and the Reserve Bank of Zimbabwe have
to the old formula that has failed in the past. As a consequence all
indicators in the Zimbabwe economy are again strongly negative.
Inflation has started to accelerate and most commentators expect this
to continue for some time. The GDP has shrunk in the first quarter of
year and I expect negative growth in the order of about 5 per cent this
year. The main reasons for this being continued stagnation in the
service and mining sectors and a sharp reduction in manufacturing
well as agriculture.
The main immediate crisis is being brought about by a severe shortage
foreign exchange. The authorities are attempting to correct this by
all available resources into the Reserve Bank and to this end severe
penalties are being imposed on any who violate strict Reserve Bank
on foreign exchange inflows. This is unlikely to be successful but has
the effect of curbing the rapid decline in the value of the currency on
parallel markets. Most traders expect the decline to continue once
have arranged how to avoid the new restrictions imposed by the recent
The foreign exchange crisis has been exacerbated by considerable
on military hardware in recent months. The full extent of this is not
because the transactions are shrouded in secrecy, but arms already
have a face value of at least US$400 million. There is talk of further
orders with East European manufacturers and the Chinese arms industry
this is not confirmed.
In an environment where we expect formal sector exports to decline to
billion, down from US$1,35 billion in 2004, this expenditure on weapons
made an already serious foreign exchange crisis unmanageable - as a
fuel and food supplies are at an all time low.
Almost all indictors point to a disastrous agricultural season -
sales are expected to reach a maximum of 65 000 tonnes (down from 85
tonnes in 2004), maize output has fallen to one third of national
oilseed crops are down very substantially and other major agricultural
sectors are all showing a downturn in output - fruit, sugar, tea,
horticulture, meat products and milk are all in very short supply. With
likelihood that winter cropping will be also very disappointing it is
that imports of food and other products will take up at least US$800
in the next 12 months. This is simply not available and a real food
is now almost inevitable.
In the liquid fuels sector, even though demand has declined from about
million liters a day to about 3 million liters a day, the State is
unable to meet demand or even a small proportion of demand.
now finding their fleets grounded for lack of fuel and exports are
up without transport to move them to their markets. Public transport is
almost non-existent and if this situation continues for any length of
it will have devastating consequences in the wider economy.
On the more technical front, we have seen the largest expansion of
debt in the history of the country in the past 5 months. The domestic
borrowing of central government has risen from Z$2 trillion at the end
2004 to over Z$10 trillion today. Even in hard currency terms this is
astonishing figure. National debt now exceeds annual GDP by a wide
and there is no sign of Government curbing its appetite for borrowing.
It is impossible to estimate the current account deficit in government
expenditure. Some economists put it at over 30 per cent. Whatever the
figure it is completely out of control and carries with it the very
threat of a collapse of state finances. The parastatals sector is also
reporting massive losses that are not being accounted for by the
The Railways total revenue is now insufficient to cover the wage bill
the management is calling on the State (often the Reserve Bank) to fund
salaries. Hwange Colliery is unable to meet demand and there is a
shortage of coal throughout industry and mining. This is now being
compounded by the fuel shortage.
The Grain Marketing Board is still selling maize at Z$600 000 a tonne
the actual cost of imported maize is over R1000 per tonne (Z$1500 000
tonne) and local maize prices to farmers are over Z$2,5 million per
With GMB sales running at about 1500 tonnes a day this implies direct
subsidies to the Board of billions of dollars. The same applies to
to other products such as rice being handled by the Board.
Fuel from the State sector is being sold at 16 per cent of its real
this partly explains its scarcity - long haul transporters buy as much
as they can in Zimbabwe where the official pump price is below Z$3500 a
liter (US38 cents at official exchange rates, 16 cents at a realistic
exchange rate). This compares to over US$1.00 per liter in most other
countries in the region. The recent actions of the Reserve Bank have
the door on private sector initiatives to fund the supply of fuel and
secure deliveries from South Africa and this is the main reason for the
The major energy supplier called ZESA is also in deep crisis. Despite
adjustments to local tariffs the organisation continues to accumulate
and is unable to properly maintain its infrastructure. Shortages of
exchange are compounding these problems and there is an increasing
in domestic electrical energy supplies.
All of these difficulties will be made much worse by the recent
central government to destroy much of the informal sector. This sector
supports over 3 million families and makes a very substantial
to the national economy. Its destruction will impact on human welfare
the country, damaging food supplies and markets and plunging millions
increased poverty and deprivation.
E G Cross
Bulawayo, 16th June 2005