In practice, most transactions are paid ZIMBABWE through domestic interbank transfers and Recent developments a parallel foreign exchange market has developed. Demand deposits in commer- Economic growth is projected to recover cial banks are trading for US dollar cash at to 2.8 percent in 2017 up from 0.7 percent a 25-32 percent discount on the parallel Table 1 2016 in 2016. Exceptional good rain patterns market and bond notes officially trade at P o pulatio n, millio n 14.2 during 2016-17 have boosted agricultural par with the US dollar but were valued at GDP , current US$ billio n 16.4 growth and poverty alleviation in rural a 5-10 percent discount on the parallel GDP per capita, current US$ 1149 areas for the 2017 H1. Most of the subsist- market as of August, 2017. Selected im- a ence crops performed well during this ports receive a foreign exchange allocation Internatio nal po verty rate ($ 1.9) 21.5 Gini co efficient a 43.2 year, but output for the main cash crop – at the official exchange rate, which Life expectancy at birth, years b 57.5 tobacco – declined by 2.3 percent. The amounts to an import subsidy. Exports of good harvest combined with cash shortag- gold, tobacco, platinum and nickel are Source: WDI, M acro Poverty Outlook, and official data. Notes: es kept inflation at 0.1 percent year-on- required to surrender export earnings at (a) M ost recent value (2011), 2011 PPPs. year in August, 2017, down from 0.7 per- the official rate, which amounts to an ex- (b) M ost recent WDI value (2014) cent in May. port tax which is only partially offset by The fiscal deficit for the first 6 months in an export subsidy of 5-10 percent. Export 2017 stood at 5.1 percent of annual GDP taxes are regressive as they disproportion- compared to 3.8 percent during the same ately hit labor-intensive activities (gold period last year. The rising deficit is large- mining and tobacco farming), negatively ly due to higher than budgeted expendi- affecting low-income groups. Economic growth is projected to recover ture which swamped modest improve- The poor are most affected by the cash ments in revenue. Employment costs con- shortages as they make less of ‘mobile to 2.8 percent in 2017 up from 0.7 percent tinue to account for two thirds of expendi- money’. While 85 percent of the popula- last year. Good rains boosted agricultural ture and 80 percent of revenue. The Re- tion has a mobile cellular subscription, growth and poverty alleviation in rural serves Bank of Zimbabwe (RBZ) has re- only 21 percent of mobile phone owners areas. The large and growing fiscal deficit sumed its engagement in fiscal expendi- among the poorest tenth of the population has drained liquidity from the banking ture (quasi-fiscal activities), administrating makes use of these phones to receive or export subsidies and other fiscal activities send money, while this is the case for 79 system. Quantitative restrictions on cash with US$190 million already committed in percent of the richest tenth (figure 1). withdrawals from banks have led to an 2017. The authorities continue to use a RBZ The current account deficit continues to active parallel market on which cash dol- overdraft to pay public sector wages. Fur- narrow, as exports increase faster than lars trade at a premium to interbank dol- ther, in absence of access to international imports. The 2017 H1 trade deficit de- capital market due to external arrears with clined by 5 percent to US$1.3 billion com- lars. Inflation remains low and a well- international financial institutions, the pared to the same period a year earlier. functioning interbank market provides deficit is financed on the domestic capital Imports increased by 5.6 percent in the liquidity for domestic transactions. market. Between December 2016 and May first half of 2017 compared to same peri- 2017 domestic debt increased by 17 percent od last year while exports increased by to US$4.7 billion (27 percent of GDP). 18.6 percent. FIGURE 1 Zimbabwe / Use of mobile money by income FIGURE 2 Zimbabwe / Stock exchange indexes decile Percent of cellphone users Industrial index Mining index 80% 400 90 70% 350 80 60% 70 50% 300 60 40% 250 30% 50 200 20% 40 150 10% 30 0% 100 20 50 10 1/4/2016 6/4/2016 11/4/2016 4/4/2017 9/4/2017 % that uses mobile phone to send or receive money Industrial index Mining index Source: FinScope Zimbabwe consumer survey (2014) and World Bank staff estimates. Source: Zimbabwe stock exchange (2017). MPO 292 Oct 17 staple commodities prices that are almost increase to US$480 million by year end, Outlook double the import landing prices in part to allow them to repay agricultural inputs up from US$180 million in August. On- going doing business and public procure- that are provided under government- ment reforms are definitely welcome but Economic growth in 2017 is projected at sponsored “command agriculture”. The cannot address the main macro-economic 2.8 percent up from an earlier projection fiscal deficit is projected to increase after imbalances. of 2.3 percent in March, 2017. The revision taking account of the performance during is due to better-than-projected agriculture the first half of 2017 compared to the same output and the well-functioning market for mobile money that is mitigating the months a year earlier. While revenues are projected to increase, expenditure will Risks and challenges impact of cash shortages on economic remain elevated as proposed expenditure growth. Exceptionally good rains during rationalizations are slowed down in the Exchange rate dynamics pose significant 2016-17 are projected to boost GDP, with run up to the 2018 election. risk to macroeconomic stability. The gap agriculture output projected to increase by The financial sector challenges are ex- between US dollar, bond notes and bank 21 percent. The mining sector is also ex- pected to continue due to a projected in- (RTGS) balances might lead to rapid infla- pected to continue growing and industrial crease in the Government overdraft with tion. Government reliance on RBZ financ- growth is projected to expand by 1.1 per- the RBZ. In response, capital inflows are ing (overdraft) increases the risk. Inflation cent. Gold, chrome and diamonds are projected to remain low and the parallel will hurt the poor most. projected to drive mining growth. Gold market premium is projected to rise fur- Preparations for national elections -due no projections are broadly unchanged while ther. In practice, the rich may continue to later than August 2018- are underway. chrome projections are revised up after hedge the inflation risk by depositing their The preparation may make it difficult to the removal of an export ban on unpro- assets abroad and investing in real assets control public expenditure. The private cessed chrome. Diamond production is through the stock market which has per- sector has adopted a wait-and-see attitude projected to increase after the anticipated formed exceptionally well during 2017 which might curtail inflow of the much- resolution of lawsuits that are keeping (figure 2). The poorest groups do not have needed foreign direct investment. The risk some diamond mines closed. that option and are likely to be negatively of political instability remains low, though Fiscal pressures are expected to intensi- affected by a rise in inflation, exacerbating ruling party factionalism might continue fy as the government guarantees prices their disproportionate share of the cash to disturb the implementation of govern- for agricultural staple commodities well crisis burden. Extreme poverty is likely to ment policy. above world market prices. State - rise, partially off-setting the decline in 2017. Owned Enterprises offer suppliers of Bond notes in circulation are projected to 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 2.8 1.4 0.7 2.8 0.9 0.2 Private Consumption -5.5 -10.6 -15.2 0.9 1.9 2.0 Government Consumption 19.6 13.1 21.6 7.7 -2.1 -6.0 Gross Fixed Capital Investment 12.7 4.2 -28.1 -28.0 -9.6 -4.7 Exports, Goods and Services -3.1 -2.6 11.7 4.8 3.6 3.5 Imports, Goods and Services -6.7 -16.3 -20.0 -3.9 0.1 0.1 Real GDP growth, at constant factor prices 2.7 0.3 0.7 2.8 0.9 0.2 Agriculture 23.0 -5.2 -3.7 21.6 7.0 5.5 Industry -2.0 -0.1 1.4 0.5 0.6 2.2 Services 1.4 1.6 1.2 0.3 -0.3 -1.8 Inflation (Private Consumption Deflator) 4.4 12.0 12.0 16.0 20.0 23.1 Current Account Balance (% of GDP) -14.2 -9.3 -4.5 -3.8 -3.7 -2.8 Fiscal Balance (% of GDP) -1.2 -2.4 -8.8 -9.5 -8.5 -6.8 Debt (% of GDP) 53.9 59.6 68.7 73.4 76.1 76.4 Primary Balance (% of GDP) -0.9 -1.9 -8.0 -8.5 -7.3 -5.4 International poverty rate ($1.9 in 2011 PPP) a,b 14.5 15.9 17.2 13.0 13.2 13.2 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty and Equity Glo bal P ractice. No tes: f = fo recast. (a) Calculatio ns based o n using 201 1. No wcast: 2014 - 2016. Fo recast are fro m 201 7 to 2019 (b) P o verty predictio ns are based o n a estimated po verty elasticity o f gro wth o f 1.83. MPO 293 Oct 17