The expected monetary policy normalisation in advanced economies could tighten financing conditions for many sub-Saharan African economies, especially where public debt levels are already high, the latest IMF report has revealed.
Zimbabwe is one of the sub-Saharan African economies with high debt levels with domestic debt having reached $11,3 billion early this year.
Over the years, Zimbabwe’s external debt has progressively risen, according to RBZ figures, from $3,5 billion in 2000 to $10,6 billion in 2015.
According to the IMF in its Regional Economic Outlook for sub-Saharan Africa Report released yesterday, high debt levels often constrain the availability of financing for the private sector a situation already being experienced in the country.
In 2017, net credit to Government went up by 70,45 percent to $6,27 billion, while credit to the private sector rose by 6,97 percent to $3,71 billion.
The IMF said the normalisation in advanced economies could also reverse the recent surge in foreign portfolio investment to the region’s capital markets.
Of late Zimbabwe has been enjoying significant increases in portfolio investments on the Zimbabwe Stock Exchange with foreign investors — net sellers in the last couple of years — turning into net buyers.
In the first quarter to March 2018, foreign investors on the ZSE were net buyers by $24 million whereas in the previous quarter to December 2018 foreign investors were net sellers by $47 million.
The IMF also warned that weaker than expected growth in key advanced economies and large emerging market economies, especially in China, would reverberate throughout the region and will affect both demand and prices for commodity prices as well as foreign direct investment inflows both of which are key to Zimbabwe’s economic recovery.
The Zimbabwean economy is largely dependent on demand and prices of commodities, which are key foreign currency earners for the country.
President Emmerson Mnangagwa’s Government has also been on an aggressive drive to lure foreign direct investment into the country and has already attracted $11 billion in commitments. The IMF, however, points to the increased external risks into the future.
On the domestic front, the IMF said political uncertainty and security challenges continue to weigh heavily on the economic outlook in some countries.
Although Zimbabwe’s political environment is stable, the upcoming 2018 harmonised elections poses risk to would be investors.
“Impending elections and political transitions in many countries may reduce appetite for difficult reforms and could lead to further policy slippages,” said the IMF.
The IMF named Zimbabwe, South Africa and Angola as some of the countries which could durably benefit from the economic policy environment.
“Recent political developments in South Africa and Zimbabwe bode well for economic policy environment.”
The IMF said ensuring macroeconomic stability is necessary to lay the groundwork for transforming the current recovery into sustainable growth.
“Prudent fiscal policy is needed to rein in the build-up of public debt, while monetary policy must be geared toward ensuring low inflation.
The IMF said non-resource intensive countries, such as Zimbabwe are expected to strengthen their fiscal positions, with planned increases in revenue mobilisation and current expenditure cuts also creating some room for higher capital expenditures.
Meanwhile, the IMF projects Zimbabwe’s real GDP to grow by 2,4 percent this year against Government’s projection of 4,5 percent.