spending that impacts directly on the ZIMBABWE poor. And user fees became the source of Recent developments revenue for non-wage expenditures in education and health services, again nega- In 2015 growth slowed to 1.1 percent tively impacting access for the poor. down from 3.8 percent in 2014 driven by The current account balance is large at poor agricultural output (figure 1). The 10.8 percent of GDP in 2015. This is almost Table 1 2015 worst affected are those that reside in equal to the investment rate of about 13 Population, million 15.6 rural areas as agriculture is the founda- percent of GDP, mainly driven by appreci- GDP, current US$ billion 13.8 tion of rural livelihoods. As a result, the ation of the U.S. dollar against major trad- GDP per capita, current US$ 885 poverty rate is estimated to have in- ing partner currencies and inadequate School enrollment, primary (% gross) b 109.2 creased by approximately 2.8 percent in domestic production. International re- b 58.0 rural Zimbabwe (figure 2). Rural areas are serves remained at around 2 weeks of Life Expectancy at birth, years home to two-thirds of Zimbabwe’s popu- import cover in 2015, leaving Zimbabwe Sources: World Bank WDI and M acro Poverty Outlook. lation, 79 percent of the poor and 92 per- highly exposed to external shocks. Notes: cent of the extreme poor. The decline in Inflation remained in negative territory, as (b) M ost recent WDI value (2013) production of both cash and subsistence prices declined by 2.4 percent in 2015, crops has negative welfare implications. driven mostly by depressed domestic de- The sharp decline in the rural areas’ pro- mand and depreciation of the South Afri- duction base contrasts with greater resili- can Rand. Deflation was experienced in ence displayed by a number of sectors in both tradable and non-tradable goods. urban areas, leading to a growing income The depressed prices at least served as a The post-dollarization boom is over and divide between the rural and urban areas. hedge for the poor, as food inflation re- trend GDP growth is now 2-3 percent. Though the manufacturing and mining mained lower than any other CPI category Continued adverse weather conditions sectors struggled in 2015 due to rising in 2015. capital costs, decline in external competi- have drastically reduced agricultural pro- tiveness, as well as sharp declines in com- duction, and Zimbabwe is forecast to grow by 1.4 percent in 2016. Recently, modity prices among other factors, a per- sistent shift in economic activity from Outlook per capita income has stagnated as trend industry to services ensured that growth growth barely covers population growth. continued in urban areas. The services The short term economic outlook remains sector grew by 2.7 percent in 2015. bleak, with growth projected at 1.4 per- In 2016, poverty is expected to rise and The fiscal situation remained tight in 2015 cent in 2016, amid continued El Nino in- the poor, especially in rural areas, will as Zimbabwe follows a cash budget. The duced declines in agriculture output. bear the brunt of the decline in economic fiscal deficit remained below 3 percent of Growth is projected to recover sharply to growth. Moreover, the economic down- GDP, far below the average of Sub Sa- 5.6 percent in 2017 and 3.5 percent in 2018, haran African countries. However, about on the back of better agricultural output, turn generates continued deterioration in 80 percent of total expenditure covered and as investment in drought resistant income distribution, leaving the rural the wage bill, leaving little for other cru- crops intensifies. Zimbabwe is well placed poor even poorer. cial spending such as social and capital to attract investment in the energy sector, FIGURE 1 Zimbabwe / Contribution to growth FIGURE 2 Zimbabwe / Changes in GDP/capita and the poverty rate by urban and rural (in percentages) 15% 12 10 10% 8 5% 6 0% 4 2 -5% 0 -10% -2 2011 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 GDP growth/ capita urban GDP growth/ capita rural Agriculture Industry Povertychanges urban Poverty change rural Services Annual growth rate Source: World Bank staff estimates. Sources: World Bank staff calculations and IMF. Note: Due to limited access to the national survey data, the international comparable poverty rate for Zimbabwe cannot be calculated. This chart presents projected likely changes in the poverty rate based on growth elasticity of poverty reduction. MPO 288 Apr 16 as prices are attractive. The country has the rural areas is projected at -1.5 per- Zimbabwe’s current challenge is that the good prospects for provision of electricity cent while it is positive for urban areas rural economy, where most of the poor as sources in Zimbabwe are more diversi- at 3 percent in 2016 (figure 2). This pre- live is not integrated into the main- fied than in other countries. However, the sents enormous poverty challenges in stream of economic activity. The reor- mining sector outlook remains depressed the rural areas. The government fiscal ganization of the rural economy in the due to continued low international miner- position will remain tight, combined wake of land reform provides an oppor- als prices as well as political and policy with small adjustments in wage expendi- tunity for broad -based growth, but both uncertainty. Despite this, gold and dia- ture and constraints to fiscal revenues as the extent of this growth and its contri- mond mining output is projected to ex- economic growth slows. bution to public finances will hinge on pand. Manufacturing is also projected to the authorities’ efforts to strengthen ten- pick-up in 2016 as the ongoing restructur- ure security in the rural sector and create ing in the sector will boost growth. And services are viewed to continue as the Risks and challenges a stable investment climate for both large agribusinesses and smallholder main driver of growth, with expected out- farmers. Formal financial intermediation put gains averaging more than 5 percent Despite near-term adverse developments, is critical to strengthen agricultural val- through 2018. Zimbabwe’s growth prospects appear to ue chains and tighten integration with The current account is expected to widen be favorable in the medium to longer run, international markets. to about 11.1 percent of GDP in 2016, as with a pickup in output growth to more Zimbabwe has a comparative advantage government will import maize due to than 5 percent in 2017, provided the risks of a well -educated population that can the drought. Exports are projected to and challenges associated with investment be exploited to increase economic expand as the US$/rand exchange rate is spending are addressed. To rebound growth by exporting services. The cur- likely to ease toward a long run equilib- above trend growth, Zimbabwe should rent stepped up polices on remittance rium rate. Deflation will persist prioritize attracting stronger foreign in- channels should be complemented by (however slowing) for the rest of 2016, vestment. For example the current guide- government policies that attract service with annual average inflation projected lines of the Indigenization Act are still not industry into Zimbabwe and build a at -0.2 percent. Drought will force up- clear on the compliance levy. There is base for exporting services. ward pressure on food prices, negatively need for much greater transparency in the affecting the poor. Economic growth in design of investment policies. TABLE 2 Zimbabwe / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2013 2014 2015 e 2016 f 2017 f 2018 f Real GDP growth, at constant market prices 4.5 3.8 1.1 1.4 5.6 3.5 Private Consumption 6.6 0.0 0.3 -1.4 0.5 -0.2 Government Consumption 5.1 4.7 0.3 1.9 1.1 2.2 Gross Fixed Capital Investment 22.4 1.4 -3.6 53.8 29.1 21.0 Exports, Goods and Services 5.9 5.6 -2.8 -1.7 8.6 5.1 Imports, Goods and Services 3.3 1.1 -3.9 2.7 -2.2 -0.3 Real GDP growth, at constant factor prices 2.7 9.8 1.2 1.9 5.9 4.0 Agriculture -2.6 25.0 -5.2 -12.1 3.0 3.0 Industry 4.8 -2.5 1.4 1.5 3.0 3.0 Services 2.7 13.9 2.7 5.5 8.1 4.8 GDP Deflator 3.7 -1.3 -1.5 1.6 2.7 2.8 CPI Inflation, period average 1.6 -0.2 -2.4 -0.2 1.0 1.6 Current Account Balance (% of GDP) -20.7 -17.6 -10.8 -11.1 -8.4 -7.1 Fiscal Balance (% of GDP) -2.1 -1.0 -0.9 -1.1 -1.2 -1.2 Primary Balance (% of GDP) -1.9 -0.7 -0.3 -0.2 -0.1 0.0 # So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice. No te: f = fo recast. MPO 289 Apr 16