Economic outlook gloomy, reports Fitch

Zim’s outlook not rosy: Fitch

NewsDay by Mishma Chakanyuka

May 23, 2019

The Ziscosteel plant, which closed down in 2016, was the major employer in KweKwe and accounted for nearly 30% of the continent’s Grade A steel. Photo added from Internet

The macro-research unit of global rating agency, Fitch Solutions, says Zimbabwe’s new monetary system is unlikely to lead to a rapid improvement in liquidity, adding that the country’s challenges will remain acute in the short-to-medium term.

The southern African nation’s economy has been plagued by foreign currency shortages which have crippled an already struggling local industry as it fails to import critical inputs and spares.

In response, authorities in Harare adapted an ambitious plan, titled Transitional Stabilisation Programme (TSP), designed to cut spending, widen the tax base and re-engage with international financial institutions, but in its latest Africa Monitor report, Fitch Solutions said fiscal consolidation was likely to proceed at a slow pace in Zimbabwe in the coming quarters, given sizeable political and economic challenges.

“However, political pressure to continue raising wages for public sector workers — particularly the security cluster — will likely undercut government efforts to pare back spending. Reduced access to the supply of basic consumer goods and rising prices have led to widespread protests in recent months, which the military and police have been instrumental in helping to contain.

“As such, we believe President (Emmerson) Mnangagwa sees it as essential in order to maintain the support of the national security forces, even at the expense of higher spending. While we deem it somewhat unlikely that the government will comply with the soldiers’ demands to be paid in US dollars following the introduction of a transitional currency (the RTGS dollar), we do see the risk of further pay rises for public sector workers in the quarters ahead, in order to prevent strikes and unrest,” read the report.

Fitch Solutions said this slow pace of fiscal consolidation would affect Zimbabwe’s ability to pay its arrears to international financial institutions and delay the country’s ability to get vital concessional loans and investments.

The external debt stock stood at US$8,2 billion at the end of March 2019. The bulk of the external debt is in arrears at 71% of the total external debt.

External debt owed to bilateral creditors stands at US$5,6 billion and constitutes the largest share of external debt.

Multilateral creditors, the World Bank and African Development Bank, were owed US$2,6 billion as at March 31, 2019.

“Although Finance minister Mthuli Ncube pledged fiscal discipline after announcing the issuance of a new currency, we expect that the government will struggle to significantly pare back spending in the face of elevated popular unrest and weakening economic growth”.