Online Reporter
ZIMBABWE’s economy is not just coping with the wars in the Middle East and the resulting disruptions and higher prices of global supplies of petroleum and petroleum-derived products, but is continuing to grow.
Much of this robust resilience arises from the reform of the economy over the last few years by the Second Republic. The reforms were not quick fixes or a flash in the pan, but rather deep-seated change based on fundamentals and market forces.
That reform process allowed a highly robust economy to grow, one that can absorb shocks and not just keep functioning, but continue to grow at its natural rate of around 5 percent a year. Variations, up and down, from that rate are largely driven by agriculture and our still very high, if diminishing dependence on rain-fed farming.
For example, the growth in gross domestic product fell to around 2 percent in 2024 after one of the most severe droughts on record, although the resilience and robustness of the economy was obvious even then as overall growth continued, albeit at the lower rate. Last year saw very high overall growth, comprising the agricultural recovery on top of what would normally be expected.
Other Government and fiscal policies have helped build up buffers against emergencies and even disasters. These are based on the original reforms, starting with the determination to live within our means at the start of the Second Republic. Budgeting became precise and money had to be raised in taxes before it could be spent. A respectable capital budget allowing Government investment into physical and social infrastructure was created, capital spending being the second highest block of Government spending after employment costs.
Borrowing was only permitted on that part of the capital budget which would give rise to an immediate flow of enough extra fees and taxes to service the debt.
Zimbabwe now routinely runs a modest budget surplus, this year expected to be around US$0,4 billion on expected Government revenue of US$9,4 billion and spending of US$9 billion. Those modest budget surpluses, plus some uncommitted budgetary spending, has meant over the years that emergencies can be handled.
For example, when Covid-19 struck, the Government found from its surpluses of the previous year enough money to buy vaccines and accelerate progress on renovating hospitals and clinics, a factor that helped bring in private sector support and development partners when they saw that worthwhile work was being done.
The effects of the 2023-2024 drought meant that a lot of people required at least some Government support for basic food until the new harvests of last year. The money was available thanks to this precautionary budgetary policy. Meanwhile, in another programme, reserves of physical grain had been built up. So there was both the grain and the cash for the issuing of grain rations to those who needed them, without much fuss and bother.
The sudden global economic crisis sparked by war in the Gulf in February could be managed in Zimbabwe thanks to the economic resilience and the buffering. The Government and private oil companies had built up three months reserves of petrol and diesel, so physical buffers existed.
Petrol price rises were largely managed by pushing up the ethanol content to E20 from E5, a process already in the works. Diesel prices needed more Government intervention, largely cutting back temporarily the tax on that fuel. Diesel, in any case, is the bedrock of the transport industry and most of the petroleum fuel used in farming and mining, rather than private transport which tends to be petrol based. So managing diesel price rises gives the greatest benefit.
Fertiliser prices, basically of the nitrogenous fertilisers that these days are largely derived from natural gas, are likely to rise but the Government is looking at measures to control this. But we will need to be precise in applications of fertiliser to help keep food price rises within affordable bounds.
The stability and resilience of the economy can be seen in the inflation rates and the exchange rates between ZiG and the US dollar. Annual inflation rose a little in March to 4,4 percent from the record low of 3,8 percent in February. But so long as inflation in ZiG and US dollar terms remain around the same, the exchange rate will remain roughly constant, as it has so far this year.
That simply shows the strength of the ZiG solidly backed by gold and foreign exchange reserves greatly exceeding all the ZiG in existence.
All the positive economic indicators were not just signs that the Second Republic had got things right, but were also measuring real and fundamental economic stability and resilience and measuring the ability of the Zimbabwean economy to keep growing, with growth projected at 5 percent this year.
