credit lines, while excessive borrowing ZIMBABWE from the domestic banking system has led Recent developments to cash shortages for the private sector. The fiscal shortfall is almost exclusively The economic downturn in 2016 was not financed from domestic sources, crowding as steep as projected in October last year out credit to the private sector. At the end Table 1 2016 and growth remained almost unchanged of 2016, credit to the government account- from 2015 outturns at 0.7 percent. Agricul- ed for 39.7 percent of all bank credit. The Population, million 16.0 tural output fell by 3.6 percent in 2016, government has borrowed over US$961 GDP, current US$ billion 13.2 less than the drop of 10 percent earlier million from the Reserve Bank of Zimba- GDP per capita, current US$ 829 anticipated. This slowed the rise in ex- bwe (RBZ), which in turn was largely fi- Poverty rate ($1.9/day 2011PPP terms)a 21.4 tremely poor people to 2.8 million com- nanced by RBZ borrowing from commer- Gini Coefficient a 43.2 pared to an earlier projected increase to 3 cial banks. As the RBZ could not honor its School enrollment, primary (% gross) b 99.9 million. Further artisanal mining, in par- commitment to commercial banks, it al- ticular of gold, created income opportuni- lowed banks to introduce limits on cash Life Expectancy at birth, yearsb 55.6 ties for the poor. Gold production in- withdrawals and delay orders to transfer Source:World Bank WDI and M acro Poverty Outlook creased by 14 percent to 22.7 tons, and money abroad for import payments. Bond Notes: (a) M ost recent value (2011) total mining output increased by 7 per- notes were introduced as U.S. dollar sub- (b) M ost recent WDI value (2014) cent. Manufacturing stabilized as capacity stitutes in October 2016, gradually increas- utilization rates of import competing in- ing their volume to reach US$94 million in dustries improved, after import licensing February 2017. was introduced for goods that competed In practice, a three tier currency system with domestic production. In contrast, the has developed in the country: inter-bank Economic growth registered 0.7 percent services sector – 60 percent of GDP – dollars, bond notes and cash U.S. dollars. in 2016, easing from a modest 1 percent slowed in the wake of falling demand The inter-bank dollar is widely accepted linked to liquidity challenges. for domestic payment but has lost value gain in the previous year. A fall in private The sharp decline in private demand – both versus the bond notes. While discouraged sector demand was offset by an increase in consumption and investment – was offset by by the RBZ, discounts for U.S. dollar cash net-exports and fiscal expansion. Fiscal- an increase in net exports and the fiscal ex- payments are widely reported. Officially expansion financed food imports and agri- pansion. The expansionary fiscal stance reported inflation has edged up, but after helped to avoid a GDP contraction in 2016 taking account of U.S. dollar discounts cultural supplies will be crucial to recov- but exhausted available public resources. The deflation continues. ery in 2017. The number of people in ex- authorities had proposed cuts in public sec- treme poverty did not increase as expected tor workers’ compensation benefits (which in October 2016 and is likely to decline in account for 70 percent of central government expenditure) or higher taxes on socially sen- Outlook 2017. However the short-term fiscal impe- sitive products that are important for the tus contributed to liquidity shortages and poor. Both were debated and rejected. Overall GDP growth under baseline con- a downward revision for medium-term Arrears on external debt have prevented ditions is projected to remain positive growth. the authorities from accessing international between 2017 and 2019, but negative in FIGURE 1 Zimbabwe / Central Government deficit, 2011-16 FIGURE 2 Zimbabwe / Number of extreme poor people in Zimbabwe, compared to what was forecasted in October 2016. Percent Millions of people 2 3.20 0 3.00 -2 2.80 -4 2.60 2.40 -6 2.20 -8 2.00 -10 2011 2012 2013 2014 2015 2016 2017* 2018* 2011 2012 2013 2014 2015 2016 Number of additonal extreme poor forecasted in April 2016 Zimbabwe Average Sub-Saharan Africa Number of extremely poor people (updated estimate) Note: All figures are estimates except for 2011. Estimates are based on estimated income changes for the extreme poor. Calculations are based on agricultural GDP growth with 70% weight and non-agricultural GDP growth with 30% weight and a poverty-growth elasticity of 1.81. Source: Reserve Bank of Zimbabwe. Source: World Bank Staff estimates. MPO 1 Apr 17 per capita terms. GDP growth is likely to 50 percent of GDP, leaving little scope for market exchange rate in spite of their remain below population growth of further increase. experience that such measures are ineffec- around 2.3 percent. Good rains will facil- The overall poverty rate is projected to tive when price pressures increase. The itate a recovery in agriculture and water- increase slightly. Projected economic baseline projection assumes a reasonably dependent sectors such as hydroelectric- growth rates - in the context of continued efficient and transparent allocation of ity. Agriculture is projected to grow by a high population growth - are not strong available foreign exchange earnings. So solid 20 percent in 2017 and advance by enough to prevent a gradual increase in far, markets have been allowed to oper- some 5 percent thereafter. Since the 2016 the number of poor by some 300,000 per ate; companies with export earnings use IMF/World Bank Annual Meetings, me- year. For extremely poor households1 offshore banks to manage their assets and dium term projections have been revised however—those that depend for a large repatriate export earnings by paying for down by some 1 -2 percentage points as part (estimated at around 70 percent on imports directly without repatriation of the financial crisis has deepened. Access average) of their income on agriculture-- export earnings. to foreign exchange is projected to re- the rebound in agricultural production in A gradual deterioration in economic con- main challenging and to continue to lim- 2017 is likely to bring down the extreme ditions could rapidly escalate in the ab- it production of goods and services. poverty rate by 4 percentage points, re- sence of a strong fiscal adjustment pro- However, as hard currency is allocated ducing the number of extreme poor to gram. The government is then likely to administratively, inflation is projected to around 2.24 million. continue to rely on domestic financing of remain subdued and the black market the budget with unfortunate consequences rate premium is projected to remain for credit to the private sector and – in the manageable. The central government deficit is project- Risks and challenges case of monetary financing – inflation. Clearing of external arrears may serve to ed to narrow to 4.8 percent of GDP down open international flows of capital and from almost 10 percent in 2016. This base- Administrative allocation of officially avert excessive use of domestic financing. line projection requires significant fiscal available foreign exchange and excessive Prospects for such development, however, adjustment, such as cuts in compensation printing of bond notes hold the potential are uncertain at the present time. benefits/wages of public sector workers. for leading to a rise in the black market Alternatively, it would involve deep cuts exchange rate. The authorities have dis- in non-wage-bill expenditures. Such ac- couraged the development of a black tions represent a challenge, in particular in the run up to elections that are scheduled for no later than July 31, 2018. Revenues 1/ Defined as those that consume less than the food are already over 25 percent of GDP and poverty line, which is the minimum amount of con- the public sector accounts for more than sumption needed to meet minimum calorie needs. TABLE 2 Zimbabwe / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2014 2015 2016 e 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 3.8 1.0 0.7 2.3 1.8 1.7 Private Consumption 0.7 0.3 -3.5 0.4 0.4 0.5 Government Consumption 4.7 0.3 0.2 -2.9 -2.4 -2.4 Gross Fixed Capital Investment 7.7 -5.0 -13.6 -21.3 -3.3 -3.8 Exports, Goods and Services -3.7 -2.8 2.7 2.8 1.2 1.2 Imports, Goods and Services -7.4 -3.9 -13.6 -10.7 -7.0 -6.8 Real GDP growth, at constant factor prices 9.8 1.1 0.7 2.3 1.8 1.7 Agriculture 25.0 -5.2 -3.6 21.3 5.0 5.0 Industry -2.5 1.4 1.1 0.2 1.0 1.0 Services 13.9 2.5 1.5 -0.9 1.3 1.1 Inflation (Consumer Price Index) -0.2 -2.4 -1.6 5.0 8.0 10.0 Current Account Balance (% of GDP) -15.1 -10.6 -4.0 -3.6 -3.7 -3.9 Fiscal Balance (% of GDP) -1.5 -2.7 -9.9 -4.8 -4.0 -3.6 Debt (% of GDP) 53.3 66.9 80.5 82.5 83.8 84.8 Primary Balance (% of GDP) -0.4 -2.0 -7.3 -2.1 -0.3 -1.0 Poverty rate ($1.9/day PPP terms) a,b,c 17.0 17.4 18.0 17.0 16.4 16.4 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 tes: e = estimate, f = fo recast. (a) Calculatio ns based o n using 201 1. (b) P o verty predictio ns are based o n a estimated po verty elasticity o f gro wth o f 1.83. (c) No wcast: 201 4 - 201 6. Fo recast are fro m 2017 to 2019 MPO 2 Apr 17