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Zimbabwe Faced Significant Economic And Climate Shocks Prior To The Pandemic In 2019, World Bank

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By World Bank

The economy contracted by 8.1 percent in 2019, the deepest decline in a decade—even amid progress on several fronts including “Doing Business” reforms.

A severe drought and Cyclone Idai significantly reduced economic activity and particularly affected the agriculture, water, and electricity sectors, while generating ripple effects on other economic sectors.

For example, prolonged power outages and water shortages reduced productivity and increased the cost of production.

The Central Government introduced tight control of public finances, which led to a fiscal surplus, breaking a trend of unsustainable fiscal spending.

However, the continuation of quasi-fiscal activities caused reserve money to balloon by 217 percent in 2019.

As a result, inflation reached triple-digit levels and the local currency depreciated by more than 70 percent against the US dollar.

Private consumption dropped sharply as food prices reached In 2019, economic shocks, a severe drought, and Cyclone Idai led to the FIRST RECESSION IN A DECADE vi hyperinflationary levels, formal employment fell, and food insecurity rose to affect nearly half of the population.

Tightened fiscal spending led to a double-digit decline in government consumption and investment, which contributed to depressed economic activity.

A decline in disposable incomes sharply compressed imports, leading to a surplus in the external current account for the first time since 2009.

Soaring prices and difficult economic conditions sharply increased poverty and inequality, especially in urban areas. Extreme poverty¹ rose from 30 percent in 2017 to 42 percent in 2019, affecting 6.6 million people.

Although ninety percent of the extreme poor live in rural areas, a steep decline in consumption was registered in urban areas, where incomes were severely impacted by currency reforms; and the scale and scope of social protection programs has historically been limited.

From 2017 to 2019, consumption expenditure fell by about 25 percent for the poorest decile of the population, but rose by 17 percent for the richest decile.

As a result, the level of inequality increased sharply and is now among the highest in Sub-Saharan Africa (SSA). Economic challenges also adversely affected service delivery, especially for the poor.

As higher prices eroded the real value of budget allocations for public wages and non-salary expenditures, the purchasing power of most wage earners, including those in the private sector fell.

Public workers’ output levels dropped, as their capacity to deliver with limited means diminished; and government services were undermined by shortages of key goods, such as drugs, medical equipment, water treatment chemicals, school textbooks, and staples for school feeding programs.

Access to services was more constrained among the rising numbers of extreme poor and wage earners harmed by losses in purchasing power.

Essential health service delivery outcomes therefore worsened, putting at risk significant improvements in infant and maternal mortality achieved from 2015 to 2018.

Although Zimbabwe increased coverage of social protection and addressed some of the implementation challenges, rising poverty rendered nearly three million extreme poor unprotected in 2019 by government or humanitarian social programs.

Persistent drought conditions negatively affected crop production and livestock survival and worsened food insecurity, further increasing the vulnerability of the extreme poor.

And ¹ Defined as living under the food poverty line of US$29.80 per person per month. World Bank estimate for 2019 based on ZIMSTAT data for April-May 2019.

vii the quality of education eroded, placing at risk human capital development and long-term growth -for example, the grade 7 pass rate fell below 47 percent in 2019 from 52 percent in 2018.

Robert Tapfumaneyi

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