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THE business community says it is pinning its hopes on the success of the Lima Agreement between the government and the International Monetary Fund (IMF) to unlock fresh lines of credit for the economy.
Prospects for growth in 2016 look dim without robust financing and improvement in the ease of doing business, the Zimbabwe National Chamber of Commerce (ZNCC) said in its 2016 economic outlook report released last week.
It implored the government to meet its bargain of the Lima deal and expedite business reform processes to ensure speedy domestic recovery.
Zimbabwe has an estimated $8 billion external debt, with the World Bank having the largest share of about 57 percent.
This has made it difficult for the country to attract fresh lines of credit for the economy given the increased risk factor.
In a meeting in Lima last October, the IMF agreed to extend lines of credit to Zimbabwe after the government made a commitment to clear $1.8 billion arrears to the multilateral lending institution within the first quarter of 2016.
“Hopes are now pinned on the government honouring its side of the bargain on the Lima Agreement, an initiative which is expected to unlock new lines of credit,” said ZNCC.
“The success of the strategy will send positive signals to the international business community, which may see investment inflows improving. This is likely to result in better economic growth prospects in the short to medium term.”
The country is already implementing a Staff Monitored Programme (SMP) with the IMF which is ongoing having registered milestones that have been recommended by the global finance body.
The year 2016, according to the report, seems to be tougher given the absence of robust economic reforms that can ensure stability to the deteriorating economy.
Unless addressed, these challenges are likely to result in a “bleak 2016”, warned the ZNCC.
While the Ministry of Finance and Economic Development has projected a 2.7 percent economic growth rate for this year, the ZNCC says the target is proving to be an “over ambitious” one without a proper support framework.
“Deflation is posing the biggest risk for the entire 2016, with inflation likely to return to the positive zone in the second quarter of 2017. As such, investment spending shall be constrained by weaker producer prices,” it said.
“The economy is expected to grow by 1.2 percent, annualised, in 2016 . . . given the devastating El Nino effects, poor commodity prices and weak aggregate demand.”
The year 2015 was a challenging one for the Zimbabwean economy which saw growth further deteriorating against a backdrop of a slowdown in the global economy, fall in commodity prices and a weakening rand.
On the local scene, obsolete machinery, poor infrastructure, policy loopholes and an unfriendly business environment, among others, continued to negatively affect the ease of doing business.
The high cost environment also saw some quarters calling for internal devaluation as a strategy for driving costs downwards.
Furthermore, the use of the US dollar has created room for regional players with weakening currencies to dump their cheap products thus rendering local products uncompetitive, reads the report.
A combination of local deflation and the depreciation of regional currencies also pose a threat to the manufacturing sector given the backdrop of a strengthening greenback underpinned by the Federal Reserve interest hike.
In view of recurrent expenditure continuing to dominate capital expenditure, the ZNCC has stressed the need for new lines of credit in order to reverse the status quo and stimulate economic growth.
It described the gazetted Special Economic Zones Bill as a welcome initiative by the government that is expected to give investment impetus in 2016.
The World Bank has ranked Zimbabwe at 155 out of 189 countries on the ease of doing business ladder. On measuring regulatory quality and efficiency, Zimbabwe moved 11 places to 79 from 90 in respect of getting credit and six places to 81 in terms of protecting minority investors, out of 189 countries. The 2.7 percent targeted growth in 2016 is mainly hinged on the commitment of the government to clear its arrears.
Other threats to economic growth include insufficient power supplies, conservative stance by banks due to high non-performing loans (NPLs), porosity of the Zimbabwean borders which is promoting smuggling and illicit financial outflows and lack of transparency in the mining sector, diamonds in particular.
The ZNCC also expressed concern over the government’s failure to pay its suppliers on time.
Online Reporter