The ascendancy to the presidency of Zimbabwe by the reform-minded Emmerson Mnangagwa will boost investor sentiment but this will not feed through into headline growth until 2019 when the country’s political outlook is more certain, according to a leading research firm.
A military coup ended Robert Mugabe’s 37-year presidency on November 21 and ushered in his longtime aide and friend, Emmerson Mnangagwa three days later.
The southern African country is due to hold elections next year, and in his first State of The Nation address, Mnangagwa said his administration will ensure a clean poll, which the country needs for political and economic stability.
BMI Research, which is part of the Fitch Group, said Zimbabwe will continue to be hamstrung by the ongoing shortage of hard currency.
“Efforts to consolidate Zimbabwe’s fiscal position will face headwinds from sluggish revenue growth and the costs of running a general election, scheduled for 2018,” said BMI.
“That said, scope for fiscal consolidation has improved following the appointment of a more reform-minded president in Emmerson Mnangagwa and we see the deficit narrowing more substantially in 2019,” in its latest country risk report.
A more optimistic outlook for foreign financing will see import growth tick up from 2019, limiting any further consolidation of the current account.
The departure of Mugabe from Zimbabwean politics bodes well for a more sustainable monetary policy going forward. The reintroduction of a local currency now less of a risk but a rushed abandonment of the foreign currency regime would likely have a negative impact on the economy, BMI notes.
“Greater scope for re-engagement with the international community, particularly with concessional lenders, increases the likelihood of a successful reintroduction of a local currency.”
“The weather is also a major risk with the country having seen several droughts over the last two decades which have had a devastating impact on the important agricultural sector and there is always a risk of a recurrence of poor rains.” – The Source