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Zimbabwe Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

The persistence of Zimbabwe’s liquidity crisis will see real GDP growth remain weak over the next two years, after contracting for the second consecutive year in 2016. Stronger tobacco harvests will see the beginnings of a recovery in 2017, but high levels of political risk will ensure the tailwind impact on growth is neutralised. The Zimbabwean government’s fiscal position will remain under intense pressure as recessionary economic conditions continue to constrain revenues. While increasing exports will offer a boost to government tax intakes in 2017, this will be insufficient to clear all outstanding arrears with multilateral creditors, keeping the door shut on an important line of concessional credit. Zimbabwe’s liquidity shortage will worsen over the next two years as US dollars continue to flow out of the economy at a faster rate than they flow in.

While the net outflow of capital will decelerate in by H217 as the performance of key export industries begins to improve, a lack of confidence in the country’s economic and political outlook will ensure investors continue to move their capital abroad. Prices will continue to decline over the coming quarters in Zimbabwe as outflows of dollars continue to constrain the money supply. The government’s efforts to increase levels of liquidity and money in circulation will mostly fail. Zimbabwe faces a highly unstable political outlook over the next 10 years, with the succession of President Robert Mugabe a near certainty and very little in the way of plans to replace him. The lack of any meaningful democratic tradition and an historical legacy of apartheid will present significant headwinds to stability for any new regime, keeping investors on the sidelines long into the country’s future. Major Forecast Changes We have revised down our short-term real GDP forecasts to account for the depth on the ongoing liquidity crisis. We now project a recession of 2.2% in 2016 and growth of 0.6% in 2017.

Table Of Contents

Zimbabwe Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Economic Recovery Will Be Limited As Liquidity Crisis Continues8
The persistence of Zimbabwe's liquidity crisis will see real GDP growth remain weak over the next two years, after contracting for the
second consecutive year in 2016 Stronger tobacco harvests will see the beginnings of a recovery in 2017, but high levels of political risk
will ensure the tailwind impact on growth is neutralised
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS 9
TABLE: FIXED INVESTMENT FORECASTS 9
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook10
Weak Economy Will Sustain Pressure On Fiscal Outlook 10
The Zimbabwean government's fiscal position will remain under intense pressure as recessionary economic conditions continue to
constrain revenues While increasing exports will offer a boost to government tax intakes in 2017, this will be insufficient to clear all
outstanding arrears with multilateral creditors, keeping the door shut on an important line of concessional credit
Structural Fiscal Position 11
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 11
TABLE: MAIN REVENUE and EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 12
Capital Will Continue To Leave Economy Despite Improving Exports 12
Zimbabwe's liquidity shortage will worsen over the next two years as US dollars continue to flow out of the economy at a faster rate than
they flow in While the net outflow of capital will decelerate in by H217 as the performance of key export industries begins to improve, a
lack of confidence in the country's economic and political outlook will ensure investors continue to move their capital abroad
Monetary Policy 13
Deflationary Conditions Will Persist On Tight Money Supply 13
Prices will continue to decline over the coming quarters in Zimbabwe as outflows of dollars continue to constrain the money supply The
government's efforts to increase levels of liquidity and money in circulation will mostly fail
Monetary Policy Framework 14
TABLE: MONETARY POLICY FORECASTS 15
Chapter 2: 10-Year Forecast 17
The Zimbabwean Economy To 202517
Policy Risks To Constrain Long-Term GDP Growth 17
The performance of the Zimbabwean economy will remain inextricably linked to the policy and political climate over the coming
years Although the trajectory of this is difficult to predict, at this juncture we believe that the economy will expand but only at a very
subdued rate as much - needed foreign investment will remain at bay owing to nationalistic policies of the ZANU-PF government and
uncertainties surrounding the succession of President Robert Mugabe
TABLE: LONG-TERM MACROECONOMIC FORECASTS 17
Contents
Chapter 3: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index19
Long-Term Political Outlook 20
Succession Uncertainty Will Add Long-Term Headwinds To Stability 20
Zimbabwe faces a highly unstable political outlook over the next 10 years, with the succession of President Robert Mugabe a near
certainty and very little in the way of plans to replace him The lack of any meaningful democratic tradition and an historical legacy of
apartheid will present significant headwinds to stability for any new regime, keeping investors on the sidelines long into the country's
future
Chapter 4: Operational Risk 23
Operational Risk 23
TABLE: OPERATIONAL RISK 23
Business Crime 24
TABLE: BUSINESS RESPONSE TO RISK IN ZIMBABWE 25
Government Intervention 28
TABLE: BUSINESS TAXES 29
TABLE: PERSONAL INCOME TAX 30
Chapter 5: BMI Global Macro Outlook35
Global Macro Outlook 35
Austerity Has Peaked, But Populism Is Not Yet Policy 35
TABLE: GLOBAL ASSUMPTIONS35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 37
TABLE: MACROECONOMIC DATA and FORECASTS 39

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