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Trade deficit narrows 10% y-o-y at $1.82 bln as RBZ sees a decline in import bill at F16

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The country’s trade deficit narrowed 10% to $1.82 billion in the eight months to August from $2.02 billion in the same year ago period largely on the back of lower imports.

According to latest data from Zimstat for the eight-month period, imports dropped to $3.32 billion from $3.53 billion in the comparable period largely due to a number of factors which include troubles in the external payment systems, import restrictions placed on selected products by Government and weak industry demand for raw materials.

Weakness in the South African rand, whose country is the biggest trading partner, has also contributed with the rand trading at 14.11 against the dollar in August vs August 2015:13.29); subdued international oil prices and waning domestic demand due to reduced Government spending (priority mostly being given to salaries and servicing treasury bills maturities).

According to the Reserve Bank of Zimbabwe, a combination of foreign currency management measures, including the prioritization of imports and restrictions on selected imports by the Ministry of Industry and Commerce in July 2016, as well as the effects of a stronger US$ on the country’s terms of trade are expected to lead to a 0.9% decline in the import bill in 2016.

Food imports (maize and wheat) are, however, expected to surge owing to the El Nino induced drought that ravaged the Southern African region, including Zimbabwe.

Exports on the other hand, were near flat at $1.507 billion from $1.51 billion last year Generally, manufacturing sector’s export performance between 2014 and 2015 indicates that the sector’s capacity to export is declining.

In addition, the process of obtaining export documentation (permits/licences) and achieving export compliance makes it cumbersome to export.

The challenge with the permits is not only their cost but also the time it takes to process them, which in itself is a higher cost.

Overall, the decline in export and import performance is a reflection of the overall slowdown in economic activity, emanating from the drought induced contraction in agriculture, depressed commodity prices particularly platinum, suppressed capacity utilisation in the manufacturing sector, as well as continued difficulties in accessing external lines of credit.

On a month on month basis the country’s trade deficit closed August at $241.2 million from $316.2 million last year. Imports in August amounted to $443.85 million while exports were $202.58 million.

For the eight-month period, Zimbabwe’s top imports remained fuels and agro-based raw materials. Wheat imports were at $59.47 million, maize imports at $177.14 million (August 2015: $93.16 million), crude soya bean oil at $71.06 million from $61.5 million last year, unleaded petrol at $271.3 million and diesel at $515 million against $560.6 million last year.

On exports, flue-cured tobacco amounted to $309.67 million, industrial diamonds $78.7 million, gold at $503.3 million, nickel ore concentrates $180.7 million.

Meanwhile, world trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%, according to the latest WTO estimates. The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.

The downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter (-1.1% quarter-on-quarter, as measured by the average of seasonally-adjusted exports and imports) and a smaller than anticipated rebound in the second quarter (+0.3%). The contraction was driven by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15 but has decelerated since then.

WTO Director-General Roberto Azevêdo said: “the dramatic slowing of trade growth is serious and should serve as a wake-up call. It is particularly concerning in the context of growing anti-globalization sentiment. We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system.

“While the benefits of trade are clear, it is also clear that they need to be shared more widely. We should seek to build a more inclusive trading system that goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalised groups in all economies. This is a moment to heed the lessons of history and re-commit to openness in trade, which can help to spur economic growth.”

The latest figures are a disappointing development and underline a recent weakening in the relationship between trade and GDP growth. Over the long term trade has typically grown at 1.5 times faster than GDP, though in the 1990s world merchandise trade volume grew about twice as fast as world real GDP at market exchange rates. In recent years however, the ratio has slipped towards 1:1, below both the peak of the 1990’s and the long-term average.

If the revised projection holds, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP has fallen below 1:1. Historically strong trade growth has been a sign of strong economic growth, as trade has provided a way for developing and emerging economies to grow quickly, and strong import growth has been associated with faster growth in developed countries.

However, the increase of the number of systematically important trading countries and the shift in the ratio of trade and GDP growth makes it more difficult to forecast future trade growth. Therefore, the WTO is for the first time providing a range of scenarios for its 2017 trade forecast rather than giving specific figures.

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