Zimbabwe is expected to face renewed inflationary pressures in 2024, according to a recent report by the Economist Intelligence Unit (EIU) on Africa economic outlook.
It also projected currency instability, with the depreciation of the exchange rate likely to worsen due to waning confidence in the Zimbabwe dollar, further driving up inflation.
The EIU is the research and analysis unit of the Economist Group, providing forecasting and advisory services through research and analysis, such as monthly country reports, five-year country economic forecasts and country risk service reports.
While EIU prediction differs from the Government’s forecast of macroeconomic stability next year, it has been supported by several economists who also project a resurgence of inflationary pressures and rapid depreciation of the local currency.
The EIU’s report also notes that inflation is expected to remain a problem in several other African countries, including Angola, the DRC, Egypt, Ethiopia, Ghana, Nigeria, Sudan and Zambia. These countries are facing similar challenges to Zimbabwe, including elevated oil prices, currency depreciation, and wage increases.
“Inflation will run strong into 2024 and remain a central story for several large economies, including Angola, the DRC, Egypt, Ethiopia, Ghana, Nigeria, Sudan and Zimbabwe,” said EIU.
“These countries will continue to suffer the economic instability generated by another year of double-digit consumer price inflation, largely driven by elevated oil prices.”
However, inflationary pressures are anticipated to moderate from the heightened levels in in 2023 in few countries including Angola, Seychelles, Sudan and Tanzania.
The EIU forecast currency depreciation against the US dollar across much of Africa in 2024, although adjustments are expected to be less severe than those recorded in 2023.
The Southern African economies of South Africa, Namibia and Botswana saw their currencies lose considerable value against the US dollar in 2023, but currency stabilisation appears the most likely outcome in 2024.
“Zimbabwe is the exception in Southern Africa, where substantial exchange-rate depreciation will be aggravated by diminishing confidence in the local currency—the weak economy will remain highly dollarised and the planned adoption of digital gold coins as a medium of exchange will further erode the value of the Zimbabwe dollar.”
However, Finance and Economic Development and Investment Promotion Minister, Prof Mthuli Ncube, recently said the exchange rate depreciation induced inflation experienced in May and June was now under control in response to a raft of measures implemented by Government and the Reserve Bank of Zimbabwe.
Year-on-Year inflation decelerated to 18,4 percent in September from 30,9 percent in June 2023. Month-on-Month inflation registering a deceleration to 0,95 percent in September from 12,1 percent in June 2023. “In the outlook, we expect inflation to continue to decelerate,” Mthuli argued in a pre-budget presentation.
He said the exchange rate and price have stabilised in response to policy interventions made in May and June. “The stability is also attributed to the introduction of the Gold coins and Gold-backed Digital Token (ZiG) for value preservation purposes and are now for transaction purposes as well,” the minister added.
The EIU argued that the currencies of several African countries are expected to depreciate against the US dollar in 2024, with five countries experiencing double-digit depreciations. These countries are Egypt, Sudan, Ethiopia, Angola and Zimbabwe.
Economics professor, Gift Mugano, recently said the Government was being dishonest with exchange rates and inflation estimates given the projected spending for next year.
Prof Mugano, a vocal critic of the government’s economic policies, argues the authorities are deliberately understating inflation. He contends the proposed spending for next year provides evidence the country is likely to experience elevated inflation levels.
“On 11 August 2023 (Mthuli) revealed that Government is anticipating to spend $25,6 trillion by December 2023 instead of the original budget of $4,5 trillion,” he said.
“In the same 2024 budget framework, (he) projected a $33 trillion budget outlay for the year 2024. During the budget consultations we heard estimated budget outlay for the year 2024 of around $47 trillion which is already well above the $33 trillion target.
“In view of the foregoing observations, the following questions are pertinent: What is driving up our budget by more than 1 000 percent when the 2024 growth outlook is expected to be around 3,5 percent while annual inflation has dropped to 17,3 percent. What will be exchange rate in 2024 when these trillions are offloaded into the market?”
Prof Mugano noted that over the last five years, the Treasury exceeded set budget as follows: $8.1 billion for the 2019 budget and overspend by $6,9 billion; $63 billion for the 2020 and overspent by US$100,2 billion; set aside $427 billion for the 2021 fiscal year and exceeded his budget by $200 billion; set aside $927 billion for the 2022 fiscal year but went on to overspend by exactly $1.112 trillion.
Mthuli budgeted $4,5 trillion for the 2023 fiscal year and is anticipating to spend about $25,6 trillion by December 2023, plus 5 times the projected budget.
“Is it true that annual inflation sits at 17,3 percent or we are fooling ourselves? If so, why are we lying to ourselves,” asked Prof Mugano on his X account.
“Should we continue to maintain command exchange rate as well as the auction system. Why can’t we move to market determined exchange rate and disband the auction system?”
Huge debt burden
According to the EIU report, Africa nations will feel the financial squeeze created by excessive debt and a heavy debt-repayment burden in 2024, which will weigh on economic growth and stability in some countries.
The financial pressure created by elevated external debt has been compounded by the fallout from multiple external shocks in recent years, including the covid-19 pandemic, Russia’s invasion of Ukraine and adverse weather conditions linked to global climate change.
Softer economic growth, higher inflation, weaker currencies and more costly international capital have exposed Africa’s debt frailties in 2023, and risks are likely to mount in 2024 in the absence of external debt restructuring.
Kenya’s biggest financial event in 2024 is the June 24th deadline to redeem a US$2 billion Eurobond in a single bullet payment, on top of other debt-servicing commitments.
“Using a combination of tactics, Kenya will strive to avoid a default and the consequent damage to its reputation, and will prioritise a timely Eurobond redemption in 2024.
“The sum is large enough to generate legitimate concern, but not so large as to be unmanageable.”
Provided Kenya clears the barrier in 2024, external debt pressures will ease, as the next Eurobond repayments (of US$1,9 billion) are not due until 2027-28,” said EIU.
Zambia, which has been in external debt distress since 2020, secured a debt-restructuring deal with official creditors and private-sector creditors in October this year.
Zambia thus seems likely to secure a complete resolution with its external creditors by early 2024, over three years after first entering default.
“Dragged-out negotiations” make Zambia’s experience a “cautionary tale for other sovereigns, and those heavily indebted to China in particular,” according to the report.
“Countries will be hesitant about embarking on a debt restructuring unless absolutely necessary, but we do expect negotiations in Ethiopia, Ghana, Malawi, Mozambique, Somalia, Sudan and Zimbabwe.
The outcome of negotiations is highly uncertain—Chinese official lenders will be loath to take a haircut on their financial assets or implement debt forgiveness that makes default and excessive risk taking more attractive—and progress will be slow and patchy,” the report added.