Zimbabwe experiencing significant financial sector stress: IMF

Source: Zimbabwe experiencing significant financial sector stress: IMF | The Financial Gazette January 17, 2017

ZIMBABWE’S financial sector is facing significant stress and relevant regulatory authorities should foster pro-active oversight to ensure that these stresses are adequately contained, the International Monetary Fund has advised.
In its policy paper, titled Macroeconomic Development and Prospects in Low Income Developing Countries (LIDCs), the Fund also said that commodity-exporting LIDC have experienced a marked slowing down of economic activity. Zimbabwe’s economy has been sliding yearly from a double digit growth of 10,6 percent in 2012 to about 0,4 percent registered last year.
“IMF team assessments indicate the emergence of financial sector stress in about one fifth of LIDCs; countries already experiencing significant stress include Burundi, Moldova, Tajikistan and Zimbabwe,” the report indicated.

The Fund forecasted that in the next 12 to 18 months, about 60 percent of commodity exporters face an elevated risk of encountering financial sector stresses as slower growth and exchange rate adjustments convert into debt service difficulties for borrowers.
Zimbabwe’s financial woes have led to a significant shortage of foreign currency, resulting in manufacturers of strategic products experiencing difficulties in timely getting enough hard currency to import critical raw materials. Already, companies in sectors such as oil expressing, motor assembly and fertiliser manufacturing have raised the red flag. Shortages are already being experienced in the fertiliser industry as foreign exchange shortages take toll.
The IMF report, which puts Zimbabwe’s GDP per capita at US$1,002, said that growth among non-fuel commodity exporters slowed down from 5,3 percent in 2014 to 4,6 percent in 2015; and projected it to further slow down to 3,8 percent in 2016.
“Domestic factors have had a significant growth impact in countries with… weak policies,” added the report, citing Zimbabwe, Zambia and Mongolia as countries in this bracket.
It further noted that the sharp realignment of global commodity prices has been a major setback for commodity exporting LIDCs, while generally benefitting others. More than 75 percent of Zimbabwe’s exports are commodities such as gold, tobacco, platinum, cotton and others, with exports constituting 60 percent of the country’s sources of revenue. The 2017 National Budget highlighted that depressed international commodity prices on mineral exports reduced output across the other sectors of the country’s economy.
“Growth prospects (for LIDCs) have become increasingly divergent. Commodity exporters have experienced a marked slowdown of economic activity, with some suffering a sharp contraction,” the Fund said.

Government has projected the economy to grow by a modest 1,7 percent this year, against the background of anticipated moderate improvements in international commodity prices, fruition of planned mining investments and benefits from the ease of doing business.
Incidence of adverse non-economic shocks such as natural disasters and epidemics increased significantly in recent years compared to the historical average, with sizable macroeconomic effects in most cases, the Breton Woods institution noted.

“The frequency of climatic events is up from five per year in 2000-2011 to eight in 2014 and 12 in 2015, with many having sizeable macroeconomic effects. A major drought in east and southern Africa attributed to El Nino led to drops in agricultural output and hydroelectric power generation and slowing down growth in Ethiopia, Malawi, Zambia and Zimbabwe.”
In Zimbabwe the drought left more than four million people food insecure after only 511 000 tonnes of maize were harvested, against an average national requirement of two million tonnes. The agriculture sector consequently recorded a growth decline of -3,7 percent last year, with the country incurring an unbudgeted expenditure of US$254 million in drought-related importation for vulnerable groups.
“Prospects for commodity exporters continue to be heavily influenced by how successfully they can implement policies to confront severely-constrained revenues and increasing fiscal deficits, reduced foreign reserves and exchange rate pressures,” said the report. FinX