Zimbabwe Economic Update, February 2016

Low export prices and high production
costs are contributing to a persistent deficit in the
external accounts. Despite narrowing somewhat in recent
years, Zimbabwe’s current account deficit remains much
larger than those of comparable countries in the region, and
exports currently amount to just over half of imports. A
decline in global prices for gold, platinum and other
mineral commodities, coupled with unresolved supply-side
constraints, has reduced the value of mining exports.
Zimbabwe has also benefited from lower oil prices, but
rising import volumes largely offset the impact on import
values. Remittances gradually increased during 2010-2015 and
are estimated to have reached almost 7 percent of Gross
National Income (GNI) in 2015. The domestic financial sector
is slowly recovering from a post-dollarization credit boom
and interest rates remain elevated. The Central Bank has
stabilized the financial sector, a recent growth of broad
money looks robust and bank lending has become
market-driven. But still only blue-chip borrowers are able
to access financing at competitive rates. The authorities
are taking measures to update Zimbabwe’s credit
infrastructure, strengthen oversight and restore the
regulatory framework. Zimbabwe is experiencing a
deflationary trend in response to these macroeconomic
imbalances. The multicurrency regime, adopted in 2009,
limits monetary policy instruments available to the
authorities but also provides a level of fiscal and economic
restraint. As competitive pressures increased, the consumer
price index fell -2.5 percent, year-on-years, at end-2015.
Declining prices should help to restore competitiveness over
time, but should be accompanied by efforts to raise
productivity at all levels of the economy.