Produced by the World Bank, Poverty Reduction and Economic Management Team - Zimbabwe

Global Economic Prospects

Global economic growth is projected at

3.2 percent in 2014, supported by some

uptick in high income countries. Recovery

in Europe continues to build momentum

with an expected 1.5 percent growth, but

deflation and unemployment concerns

continue to persist. In the US, growth has

begun to soften in the first quarter of 2014,

on the back of extreme weather conditions.

In developing countries, 2014 growth is

expected at 5.3 percent, benefiting from

strengthening demand from some high

income countries, gradual improvement in

sentiment and stronger domestic demand. In

Sub-Saharan Africa, robust growth of 5.4

percent is supported by strong domestic

demand especially in the resource sectors,

infrastructure investments and the recovery

in Europe. However, growth may be upset

by the slowdown in China and Brazil.

Capital flows to developing countries

tumbled in February 2014, reflecting

increased risk aversion, heightened stock

market volatility and continued tapering of

the US Fed monetary policy. Oil prices

spiked while global stock markets declined

in February and March in the wake of

Russia-Ukraine tensions. Precious metal

prices made mild upturns in February as

demand picked up on the back of increased

volatility in equity markets and depreciation

of emerging market economies currencies.

The global environment may affect the

Zimbabwean economy through stronger US

dollar, lower global demand for key exports,

weaker commodity prices and reduced

capital inflows to developing countries.

Growth and commodity prices outlook 2012 2013 2014f 2015f 2016f

Growth World 2.5 2.4 3.2 3.4 3.5

High income countries 1.5 1.3 2.2 2.4 2.4

Developing countries 4.8 4.8 5.3 5.5 5.7 Sub- Saharan Africa 3.5 4.7 5.3 5.4 5.5

Zimbabwe 4.4 3.0 4.2 4.3 4.5

South Africa 2.5 1.9 2.7 3.4 3.5 China 7.7 7.7 7.7 7.5 7.5

Botswana 4.3 4.6 5.0 5.2 5.2

Zambia 7.3 6.0 6.5 6.0 5.8

Commodity prices

Platinum ($/oz) 1551 1487 1400 1350 1340

Gold ($/oz) 1670 1412 1220 1200 1190 Maize ($/mt) 298 259 225 235 235

Tobacco ($/mt) 4302 4650 4600 4400 4374

Cotton (c/kg) 197 199 195 200 203

Source: World Bank, Development Prospects Group

Economic Performance in 2013

2013 growth has decelerated to an

estimated 1.8 percent, with a strong

slowdown in the last quarter, well below

initial projections. Growth performance was

weakened by the slowdown of key sectors of

the economy and depressed investment in the

election year.

Agriculture has contracted by 1.3 percent

in 2013, weakened by the strong decline in

maize (-7.5 percent) and cotton (-67

percent), following the drought season. The

tobacco sector has remained buoyant, as

production increased by 20 percent, and

exports reached US$877.5 million,

supported by good prices in 2013.

Recovery in the mining sector was

stymied by lower international prices,

subdued investment and rising

production costs. Gold production dropped

by 5 percent, to register 14 065 kg while

platinum recovered by 24 percent in 2013.

Diamonds reached an estimated 10.5 million

carats in 2013. Zimbabwe successfully

Zimbabwe Economic Briefing April, 2014

2

auctioned its two consignments of diamonds

in Antwerp in December 2013 and February

2014 and another auction in Dubai in March

2014. Held under improved transparency

conditions, diamonds fetched an average

price of USD73-78/carat, which compares

favorably to average past prices of

USD53/carat.

The manufacturing sector grew at an

estimated 1.5 percent in 2013, stunted by

persistent subdued investment, declining

competitiveness and binding credit

constraints.

2014 Projections

Growth in 2014 is expected at 3 percent,

dragged by the headwinds from the global

economy, low investment and weak growth

of the mining sector. The carry over effects

of the 2013 slowdown are also likely to

weigh down on 2014 growth.

After a very weak 2012-2013 seasons,

agriculture is expected to rebound by 7.3

percent in 2014, largely supported by

recovery in maize (to 1.2 million tons). The

first crop assessment estimates that 1.4

million hectares was planted to maize (18

percent increase from the previous season).

Tobacco production should confirm the

positive results of the past season, although

the increase in area planted is likely to be

muted by weaker prices. Despite a reduction

in hectarage, the cotton production is

expected to register an improvement in

2014, benefiting from improved yields and

favourable rains.

Recovery in the mining sector remain

muted, with expected 3.3 percent growth in

2014, saddled by still lower international

prices and subdued investment. Gold

production recovered by 0.6 percent to reach

2168 kg in the first 2 months of 2014.

Platinum production dropped by 7 percent,

reaching 2058kg, while nickel surged to

3117 tonnes, buoyed by scaled up

production by Bindura Nickel Corporation.

Diamonds production is expected to reach

10 million carats in 2014-2015.

The manufacturing sector will remain in

lackluster performance, at 1.4 percent in

2014, stifled by low investment, declining

competitiveness pressures, and further

tightening of credit conditions.

2014 growth projections will be sensitive to;

the pace at which the government moves to

address macro-economic vulnerabilities and

structural impediments to investment,

international prices and the coherency of

policy responses.

The outlook remain further clouded by

downside risks, emanating from lower

international prices of minerals,

vulnerabilities in the banking sector, policy

inconsistences affecting investment,

deflationary pressures, fiscal slippages and

the unbalanced external position.

GDP growth rates and shares of GDP : 2012-2014 Growth rates (%) Shares of GDP %

2013e 2014f 2013e

Supply of GDP (fc) 1.8 3.0 100.0 Agriculture -1.3 7.3 12.4

Industry 2.1 1.9 31.3

Services 2.8 3.4 56.3 Demand of GDP (mp) -6.6 -0.2 100 Domestic Absorption 33.7 2.1 129

Consumption 11.7 0.8 117 Investment 14.1 12.4 12

External Absorption

Exports -2.7 4.9 35. Imports 2.8 7.5 59

Source: World Bank, Staff Estimates - 2014: Preliminary

3

2013 Fiscal developments: Government

revenue fell 3.1 percent short of the

target, to reach US$3.74 billion in 2013,

following unexpected revenue contraction in

the last quarter. The lower revenue inflows

were driven by underperformance of taxes.

Diamond dividends remain low, with

US$18.2 million received by Treasury in

2013. Non-tax revenues presented a

temporary hike in 2013, reaching US$327

million, due to a one off licence fees from

the telecommunications sector. Government

expenditure remained high at US$4 billion,

with employment costs absorbing US$2.3

billion (67 percent of current expenditure

and 63 percent of total revenue), crowding

out capital and social expenditures. As such,

the government ran a budget deficit of 1.9

percent of GDP in 2013, which was largely

financed by the issuance of Treasury Bills.

2014 Outturn

Total revenue continues to underperform as

it amounted to US$805 million, falling 8

percent short of target in the first 3 months

of 2014. Tax revenue fell 7.5 percent below

expectations, sapped by underperformance

of major taxes: income taxes (-6 percent

especially companies), customs duties (-26

percent), excise duties (-9 percent), VAT

(-19 percent). Non-tax revenue fell 11

percent below target to reach US$56

million. This revenue slide largely reflects

economic slowdown and visible deflationary

pressures.

Source: Ministry of Finance

Expenditure totaled US$767 million, and is

increasingly skewed towards employment

costs, which gobbled US$551million (68

percent of total revenue, 73 percent of tax

revenue and 76 percent of current

expenditure) in the first 3 months. Travel

expenditure absorbed 1 percent of total

revenue, while capital expenditure continues

to bear the brunt of the unbalanced

expenditure pattern, at 2.9 percent of total

revenue. The ambitious 2014 budget will

feel the pressure of upcoming wage

increases (14 percent) and recapitalization of

RBZ against declining revenue performance.

External Position: The external position

remains under pressure. Following the 2.8

percent slip in exports in 2013, 2014 opened

on a depressed note as exports further

slumped by 16 percent to reach US$471

million in the first 2 months. Mineral

exports and tobacco however remain the key

drivers of exports. Imports which increased

by 2.7 percent in 2013, dropped by 14

0

50

100

150

200

250

300

350

400

Jan

-13

Feb

-13

Mar

-13

Ap

r-13

May

-13

Jun

-13

Jul-

13

Au

g-13

Sep

-13

Oct

-13

No

v-13

Dec

-13

Jan

-14

Feb

-14

Mar

-14

Revenue collection: January 2013-March 2014 (US$ Millions)

Income Tax Customs duties Excise dutiesValue Added Tax Other Taxes Non-tax Revenue

Fiscal Performance: JanuaryDecember 2013 (US$ Millions)

Actual Target Variance Variance (%)

Total Revenue 3,741 3,860 -119 -3.1

Tax Revenue 3,414 3,646 -232 -6.4 Non-Tax Revenue 327 214 113 53

Total Expenditure 3,987 3,860 127 3.3

Current Expenditure 3,520 3,295 225 6.8 Employment costs 2,344 2,255 89 3.9

Travel Costs 74 59 15 25

Capital Expenditure 396 496 -100 -20

Deficit -246

Source: Ministry of Finance

4

percent in the first 2 months of 2014,

reaching US$966 million. The current

account deficit is expected at 26 percent in

2014 and largely financed by short term

capital flows. International reserves are low,

at 0.2 months of import cover.

Source: Reserve Bank of Zimbabwe

Sources: Ministry of Finance, Reserve Bank of Zimbabwe,

Chamber of Mines and Kimberly Process Statistics

Consumer prices: Strong easing of prices

of tradables is leading deflationary

pressures, while the prices of domestic non-

tradables further strengthened, amidst falling

aggregate demand and weakening of the

Rand. CPI inflation closed 2013 at 0.3 and

continued on a downward trend, turning

negative (-0.5 percent) in February and slid

further to -0.9 percent in March 2014.

Source: ZIMSTAT

Banking Sector: Vulnerabilities remains

high in the banking sector, exacerbated by

macro-economic inconsistencies and low

levels of confidence. Non-performing loans

are high at 15.9 percent, while liquidity

-5000

0

5000

10000

2009 2010 2011 2012 2013E 2014F

Exports, Imports and Current Account Balance (US$ millions)

Exports Imports Current Account

-40

-30

-20

-10

0

10

20

30

40

2009 2010 2011 2012 2013E 2014F

Current Account Deficit and Financing (percent of GDP)

FDI and Portifolio Investments Long Term Capital Flows

Short Term Capital Flows External Payments Arrears

Errors and Ommisions Current Account

-

500

1,000

1,500

2,000

2,500

3,000

2009 2010 2011 2012 2013 2014

Mineral Exports 2009-2014 ( US$ Millions)

Gold PGMS Diamonds Nickel Coal Ferro Alloys Other Minerals

80

85

90

95

100

105

110

CPI Index 2009-2014 - Monthly (December 2012 =100)

CPI Food and non alcoholic beverages Non food

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0Headline, Traded and Non-Traded Inflation

Headline Inflation Traded Inflation

Non-Traded Inflation

5

conditions remain tight at 27.8 percent as at

December 2013. Solvency concerns

especially in smaller banks also remain a

drag in the periphery, making the RBZ to

intensify the monitoring of troubled banks.

The RBZ floated treasury bills worth

US$103 million in March 2014 to clear part

of the US$1.35 billion RBZ debt taken over

by government. The treasury bills will

facilitate interbank lending, as they will be

used as security.

Growth in annual broad money edged up by

5.5 percent to reach US$4 billion in

February 2014. Private sector credit growth

inched up 1.5 percent, reaching US$3.6

billion, while loan to deposit ratio remains

elevated at 90 percent in the first 2 months.

Source: Reserve Bank of Zimbabwe

Stock Market: Despite closing 2013 on a

recovery path, the stock market indices

opened 2014 on a bearish mode. The

industrial index backslided by an average 3

percent over the JanuaryMarch 2014

period, possibly reflecting both the recent

tapering off of the US Federal Reserve Bank

monetary policy stance and the slowdown of

the Zimbabwean economy. The mining

index also lost an average 9 percent during

this period. Market capitalization decreased

by 4.3 percent over January-March 2014, to

reach US$4.5 billion in March 2014.

Source: Zimbabwe Stock Exchange

0

20

40

60

80

100

120

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Pe

rcen

t

US$

Bill

ion

s

Deposits, Loans and loans to deposit ratio

Deposits Loans Loans to Deposit Ratio (right)

0

5

10

15

20

0

10

20

30

40

50

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Non-performing loans and liquidity ratio in the banking sector

Liquid Ratio (left) Non Performing Loans (right)

0

50

100

150

200

250

ZSE Peformance (Jan 2012-March 2014)

Industrial Index Mining Index