Cautious optimism for growth in 2022

Christopher Mahove

Although the Business Confidence Index (BCI) stood at 8.6, in 2021, the low confidence can be improved for the better in 2022 depending on the future path of the corona virus pandemic and fiscal discipline by monetary authorities considering the impending election campaign period.

Zimbabwe is expected to hold by-elections in the first quarter of the year and general elections next year, and it is highly likely that authorities will be tempted to divert from the budget to fund these national events.

The Zimbabwe Electoral Commission was allocated $11 billion in Finance and Economic Development Minister, Mthuli Ncube’s budget but the electoral body says it requires $23 billion to effectively run the elections.

 However, improved business confidence, business profitability and investment are more likely to increase, making it possible to achieve the 2022 growth target of 5.5% driven by private sector growth.

But should business confidence remain marginally low, the projected growth target will be difficult to achieve.

This entails that monetary authorities extend their tight monetary policy stance, especially local currency denominated transferable deposits. This will help reduce resurgent inflationary pressures.

The efficiency of the foreign currency market needs to be improved, probably through the full tenets of the Dutch auction system and subsequently auctioning foreign currency that is readily available as a way of ensuring that there are no backlogs as happened in 2021.

Since its inception in June 2020, the auction system has faced a number of challenges as it failed to adequately meet the demand for foreign currency, with the RBZ sometimes falling into arrears of up to two weeks.

The auction has since allotted a total of US$2 596 380 813 with 2037 benefitting from the US$1 645 427 941 allotted under the Main Foreign Exchange while 5 288 were beneficiaries of the US$326 018 895 allotted under the SMEs Foreign Exchange Auction.

Government’s main task going forward will be to improve confidence in the use of the local currency as the currency of first choice and the preservation of its value.

The past year has been characterised by exchange rate instability and a worryingly very large gap of more than 100% between the official exchange rate and the alternative market, which if it continues, presents an inordinate risk for the economy going forward.

Going forward, the country needs to end all quasi fiscal operations and central bank borrowing to support the auction system which should ordinarily be dominated by independent foreign currency buyers and sellers

The country needs to attend to investor concerns such as rule of law, property rights and monetary policy consistency and simplify the local trade, taxation, mining, and investment procedures to weed out corruption and compete for global capital with regional peers

The expected normal to above normal rainfall are likely to see growth in the agricultural sector, barring unforeseen disasters.

There is, however, a need for private sector led funding in the sector to ensure there is meaningful mechanisation and modernization of farming processes.

Infrastructure development, which achieved noteworthy milestones, is likely to continue on a positive note with a number of projects expected to be carried out in the year.

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