Uncertainity plagues Zim economy


HARARE – Uncertainty  over Zimbabwe’s political future continues to affect the country’s economic performance with experts predicting a slowdown of the economy.

Zimbabwe is due to hold watershed polls in a fortnight with President Robert Mugabe squaring off longtime rival Prime Minister Morgan Tsvangirai.

However, investors have taken a wait-and-see approach with their funds — bringing the economy to a standstill.

Christopher Mugaga, head of research at Econometer Global Capital said the country’s economy remains fragile going forward with policy uncertainty taking its toll on the prospects of attracting suitors to invest.

“If you look at the financial services sector, it is clear that the deposit growth is tapering off, the imminent threat posed by EcoCash and rising sentiments to do with indigenisation of foreign banks will continue to alienate potential depositors,” he said.

According to the Bankers Association of Zimbabwe, the country’s total banking deposits have declined to $3,7 billion from $4,2 billion due to liquidity constraints confronting the economy.

Mugaga noted that the country’s financial services sector is hanging by a thread with liquidity ratios of 14 out of 26 banks deteriorating continuously.

“The percentage of non-performing loans is bound to slightly grow with potentially disputed elections on the horizon,” he said. Other market observers say with no clear-cut economic policies coming from the manifestos of the two main political parties — Zanu PF and manistream MDC — investors will continue to skirt the southern African country taking their monies elsewhere.

Tetrad Investment Bank (Tetrad) in its weekly report indicated that policymakers should work towards creating policies that attract more foreign capital into the economy as excess liquidity flows are in search of higher returns which are mainly found in emerging and developed economies, Zimbabwe included.

“With the credit crunch in the economy worsening by the day the five percent of gross domestic product (GDP) growth forecast for 2013 might not be achieved,” said the bank.

Economist Eric Bloch said it was important for Zimbabwe to have free and fair elections to help lure foreign investors as well as open clogged credit lines.

“The business community is looking forward to the new government and policies which will boost economic recovery greatly needed and craved for by all Zimbabweans,” he said.

The African Development Bank (AfDB) in its May Monthly Economic Review said Zimbabwe’s economic slowdown is mainly a result of uncertainty around the process and outcome of elections with the current liquidity crunch being among the signs of stress.

According to the regional development bank, broad money supply declined from 33,4 percent in March 2012 to 10,5 percent in March 2013 largely due to declining long-term deposits, after deposit maturities were withdrawn from the formal banking system instead of being rolled over.

“The withdrawal of long-term deposits may be attributed to factors that include uncertainty around the post-election business environment. On monthly basis, banking sector deposits have declined influenced by low average disposable incomes, individuals’ and corporates’ reduced capacity to save and weak confidence in the formal banking system,” AfDB said.

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