AfDB laments Zim’s trade deficit

Zimbabwe’s trade deficit status has prevailed as the productive sectors of the economy have largely failed to boost capacity utilisation due to financing constraints.
In its “Infrastructure and Growth in Zimbabwe: 2011” report, the AfDB noted how the cash-strapped economy typified by a credit crunch was further impelling the country’s balance of payments deficit.
“Zimbabwe’s external position remains precarious.
“Developments in the capital and financial accounts continued to be dominated by the accumulation of arrears in 2009, increasing the balance of payments deficit in the absence of substantial inflows from disbursements of public sector loans/grants as well as from foreign direct and portfolio investments,” read the AfDB report.
Official statistics show that in 2009, the country’s total exports amounted to about US$1,6 million, almost the same as in 2008.
The weak export performance is attributed to lower export prices as a result of the global economic downturn, decreased output volumes of selected agricultural and mining export products, as well as limited access by businesses to both domestic and offshore credit lines.
Imports increased substantially by about 22 percent from US$2,630 million in 2008 to US$3,2 million in 2009, reflecting the need to compensate for shortfalls in domestic production of agricultural goods and raw materials and increased demand for rehabilitation or replacement of capital equipment. The current account deficit widened further to nearly 17 percent of Gross Domestic Product in 2009 from 16 percent in 2008.
Short-term private inflows, Special Drawing Rights (SDR) allocations, external payment arrears, and reduction in banks’ foreign assets largely financed it.
Some economists have noted that a significant share of the country’s trade deficit is financed from remittances from the Diaspora community, which is not usually accounted for because a large portion of the remittances do not pass through official channels.
To this extent, there may be need for Zimbabwe authorities to consider taxing foreign-based locals on their incomes. This entails the establishment of a residence base of taxation system which has the advantage of broadening the tax base through capturing revenue generated worldwide by resident individuals and corporations to help boost cash-flow in the economy.
Last year, Zimbabwe’s current account deficit remained largely as high and at almost the same level as in 2009.
According to the AfDB this was on account of increasing imports estimated at US$3,6 billion against exports of about US$2 billion and a slowdown in private transfers, such as remittances, to about US$660 million, compared with almost US$1 billion in 2009.