HARARE - Economic think tank, Business Monitor International (BMI), has forecast Zimbabwe’s economy to grow by 3,4 percent this year due to limited foreign direct investment in the country.
It said the country’s moribund economy will remain stagnant as the much-needed foreign investment will continue being constrained by investor wariness over government policy.
“The risks are tilted to the upside as the economy will grow rapidly if authorities are able to attract more investment than we currently anticipate.
“Meanwhile, any premature return to a domestic currency presents the biggest downside risk,” said BMI.
This comes as government has forecasted the country’s gross domestic product to grow by 6,1 percent this year driven by growth in the mining, agriculture and tourism sectors.
However, economic experts claim that the targets set by government are “ambitious and unachievable” due to low aggregate demand in the economy.
ZB Financial Holdings Limited (ZBFH) recently said government’s projected 6,1 percent economic growth target is a tall order as the recently announced 2014 budget does not comprehensively address challenges facing the country.
In December, Finance minister Patrick Chinamasa presented a belated $4,1 billion budget under which he predicted Zimbabwe’s “investment-starved” economy would grow by almost double this year from the 3,4 percent in 2013.
The Treasury chief’s predictions come amid hurdles which include an acute liquidity crisis, low savings, depressed investment, a huge external debt overhang, subdued industry productivity, infrastructure deficits and general financial sector vulnerabilities, among other constraints.
Chinamasa also projected real gross domestic product (GDP) growth of 6,4 percent in 2015 — translating to a nominal GDP of around $14,1 billion — up by almost seven percent from the 2013 nominal GDP of about $13,1 billion.
“However, the (budget) statement does not comprehensively seek to address most of the challenges,” said ZBFH adding that “it is… difficult to see how the economy can grow to the envisaged level of 6,1 percent in 2014 from a low base, particularly given the severe funding constraints, which the real sectors of the economy are facing.”
“While we believe that growth will still be possible in 2014, we do not foresee that growth surpassing what was achieved in 2013 (3,4 percent),” the Zimbabwe Stock Exchange-quoted financial group said.
It further stated that the agriculture sector — expected to be the key driver of the country’s slackening economy along with mining — “is at the mercy of good rains, and outside of tobacco, growth in other crops will likely be stunted.”
“Mining remains the key growth driver, but is also subject to adverse price fluctuations on international commodities markets, which in the short to medium term are not favourable.
On the other hand, ZBFH said Chinamasa’s reaffirmation of the use of the multi-currency regime “will give investors and the public a greater sense of confidence and certainty in the conduct of their transactions.”
Zimbabwe abandoned its currency in 2009 after it had been ravaged by hyperinflation which topped 231 million percent and adopted the multi-currency system — dominated by the United States dollar.
While presenting his 2014 budget, Chinamasa reiterated that there will be no immediate re-introduction of the Zimbabwe dollar.
This was on the back of escalating fears and debate over the return of the local currency as the country suffers an acute liquidity crisis.
“Contrary to what is peddled in the newspapers, government has continued to reassure the market that the multi-currency system is here to stay,” he said.