LOCAL financial services firm, IH Securities, says the economy will experience a mild recovery this year, as risks to the government’s initial 6% economic growth projection remain.
Treasury projected a GDP growth of 6% this year, buoyed by a rebound in commodity prices and better rains, key ingredients for the growth of the mining and agriculture sectors, respectively.
However, this growth is now threatened as the United States resolved to cut foreign assistance from which Zimbabwe was receiving hundreds of millions of United States dollars per annum.
Further, the growing exchange rate volatility, rising taxes, inflationary pressures and declining disposable incomes threaten growth projections.
“Looking ahead to 2025, Zimbabwe’s economy is anticipated to experience a mild recovery, driven by a favourable agricultural season, increased investments in key sectors and a rebound in commodity prices that will enhance mining revenues,” IH Securities said in its latest economic outlook report.
“According to Finance minister, Mthuli Ncube, the economy is projected to grow by 6% in 2025. Additionally, improvements in electricity generation, projected to grow by 10,6% and advancements in the information technology sector (forecast at 9,9%) will further bolster economic performance.”
IH Securities said government needed to promote growth of other essential sectors, encourage renewable energy investment and promote agricultural resilience.
“Beyond 2025, economic growth is projected to stabilise at around 5%, largely fuelled by rising private consumption and sustained investment. To mitigate the risk of potential GDP decline, several strategic long-term measures are on the cards,” IH Securities said.
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“These include strengthening agricultural resilience, diversifying the energy mix to incorporate renewable sources and promoting the growth of other essential sectors beyond mining and agriculture.”
The research firm noted that the public services wage bill had been the major push for the country’s reliance on debt, which has been persistent over the years.
“Public service wages received 56,4% of the revenue allocation, which falls above the fiscal rule threshold of maintaining employment costs within 50% of revenue. Zimbabwe has been heavily reliant on debt to partially finance the budget,” IH Securities said.
“Given substantial impending treasury bond maturities, government has announced it plans to restructure these securities to reduce debt service costs to sustainable levels cognisant of limited fiscal resources.”
IH Securities said while Treasury had made moderate efforts to expand the tax base in the 2025 budget, the existing formal sector continued to face higher levels of taxation.
“In our view, Treasury may witness a widening of the budget deficit in the outlook amid informalisation, which continues to erode the tax base,” IH Securities said.
“Concessions given to the productive sector will provide some price relief to consumers, while the reduction on CGT (capital gains tax) on listed security disposals is a positive development for capital markets.”
“We, however, believe that support to the energy industry remains insufficient to assuage the debilitating power cuts currently plaguing the country.”
