Printed by Printflow (Private) Limited Zimbabwe ECONOMIC AND FISCAL REPORT FOR YEAR 2020 ‘2020 Annual Budget Review’ HARARE May 2021 1 CONTENTS INTRODUCTION . 7 Overview . 7 Covid-19 Pandemic . 8 Gross Domestic Product (GDP) . 14 Prices . 16 Exchange Rate Market . 17 SECTOR PERFORMANCE . 20 Agriculture . 21 Mining . 32 Manufacturing . 42 Tourism . 44 Construction . 46 Micro, Small and Medium Enterprises (MSMEs) . 46 Venture Capital . 47 Sport Arts and Culture . 48 FINANCIAL SECTOR DEVELOPMENTS . 49 Reserve Money . 50 Banking Sector Assets and Deposits . 50 Loans & Advances . 51 Loan Portfolio Quality . 51 Earnings Performance . 52 Financial Inclusion . 52 Insurance and Pensions . 53 Compensation for Pension and Insurance Losses . 53 Revaluation of Assets & Liabilities . 54 Compliance with Prescribed Assets Requirements . 54 Compliance to Minimum Capital Requirements . 55 African Risk Capacity Programme . 56 Capital Markets . 56 Zimbabwe Stock Exchange . 57 Victoria Falls Stock Exchange . 59 The Commodities Exchange Market . 60 Zimbabwe Receivables Marketplace . 61 3 FISCAL OUTTURN . 61 Revenue . 63 Expenditure . 65 Public Debt . 67 Domestic Debt . 67 PERFORMANCE OF BUDGET PROGRAMMES. 71 Capital Development Programmes . 71 Devolution 7. 73 Energy . 73 Transport . 75 Water & Sanitation . 79 Information Communication Technology . 81 Housing Development . 82 Recurrent Expenditure . 86 DEVELOPMENT PARTNER SUPPORT . 99 EXTERNAL SECTOR . 101 Merchandise Exports . 101 Merchandise Imports . 104 Trade Balance . 106 Current Account . 107 STRUCTURAL REFORMS . 109 Public Enterprises . 109 Ease of Doing Business Reforms . 114 ZIDA . 116 Governance . 117 NATIONAL DEVELOPMENT STRATEGY 1 . 118 NDS 1 Priorities . 119 NDS 1 Targets . 120 CONCLUSION . 121 ANNEXURES . 122 4 FOREWORD In 2018, Government embarked on an ambitious journey of undertaking structural reforms to put the economy on a sound footing for sustainable economic growth under the umbrella of the Transitional Stabilisation Programme (TSP). The year 2020 marked the end of the TSP and it is logical to reflect on the journey so far as we move towards Vision 2030 of a “Prosperous & Empowered Upper Middle-Income Society by 2030”. Notwithstanding the difficult macroeconomic environment worsened by exogenous shocks related to recurring droughts, Cyclone Idai and the COVID-19 pandemic as well as limited external support, Government remained on course in implementing the necessary macro-fiscal reforms. Government undertook fiscal and monetary reforms which have already started to bear fruit manifesting through price and exchange rate stability, critical requirements in attracting investment. Government also undertook structural reforms which have enabled the country to improve on the ease of doing business ranking. Furthermore, despite pandemic negative consequences on the economy, Government remained on course in implementing the TSP and other relevant interventions to the extent that the economy was less severely affected as earlier predicted. As a result, the fiscal and current account balances are positive while inflation is retreating giving scope for sustainable stabilisation. In consolidation of this success, a new economic blueprint the National Development Strategy 1 (NDS1) was launched in November 2020 and is set to guide the nation for the next five years. It is refreshing to note that the implementation of NDS1 has started on a sound footing owing to a relatively stable economic environment and the favorable 2020/21 rainfall season which should ensure the attainment of the 2021 National Budget targets. Furthermore, the roll out of the COVID-19 vaccination programme is expected to go a long way in ensuring better economic activity in 2021, and beyond. I also believe that the worst is behind us now and there can only be better prospects for our country. Let me hasten to point out that the successes recorded so far are as a result of dedication and sacrifice by all stakeholders, especially the ordinary citizens and I call for the same 5 spirited efforts during the implementation of the NDS1 commencing with the 2021 National Budget for a better Zimbabwe we all yearn for. Hon .Prof M. Ncube Minister of Finance and Economic Development 6 May 2021 6 INTRODUCTION 1. The 2020 Economic and Fiscal Report provides an update to stakeholders on execution of the 2020 National Budget in compliance with Part III of the Public Finance Management (General) Regulations of 2019. Overview 2. The 2020 National Budget was geared towards enhancing higher productivity, stimulating growth and job creation, and accordingly prioritised macro-fiscal consolidation, promoting competitiveness and export diversification for more sustainable and inclusive development in line with the Transitional Stabilisation Programme (TSP). 3. The economy was, therefore, originally projected to grow by 3%, premised on the following assumptions: • Expected better rainfall season; • Increased use of irrigation to sustain agricultural activities; • Better planning for agriculture production; • Improved electricity supply through imports and other alternative sources of energy e.g solar; • Improved macro-economic environment; • Fiscal incentives to various sectors of the economy; and • Improving investments by both public and private sector. 4. Implementation of the 2020 Budget, however, encountered a number of headwinds, particularly related to natural disasters such as drought and the 7 COVID-19 pandemic. The two exogenous shocks posed immense risks to human lives and stifled economic activity in most sectors of the economy with manufacturing, construction, financial sector, electricity generation, education and tourism as well as the informal sector being the most affected. These emerging challenges were on the back of a fragile economy emerging from the 2018/19 drought and the aftermath of Cyclone Idai compounded by other macroeconomic vulnerabilities. Covid-19 Pandemic 5. The most severe threat to both human life and the economy was posed by the COVID-19 pandemic, which emerged in late 2019, and caused a worldwide humanitarian crisis that disrupted supply chains and restrictions of movements of people and goods. 6. Throughout 2020, the pandemic damaged nations, spreading to 216 countries and territories around the world, with over 82.4 million cumulative confirmed cases and about 1,802,748 deaths globally, by end of December 2020. Figure 1: Global COVID-19 Monthly Cases and Deaths Source: WHO, https://COVID19.who.int/ 8 7. In Zimbabwe, the first case was reported on 21 March 2020 in the resort town of Victoria Falls and by 31 March, 7 more people tested positive, with one reported death. There was a steady increase in the number of cases through April to August, rising to 5378 by mid-August 2020 with 141 reported COVID-19–related deaths. By end of December 2020, COVID-19 cases stood at 13 625 with 360 fatalities deaths. 8. Like most countries, resources were channelled towards strengthening the country’s health systems, containment and recovery efforts. Figure 2: Zimbabwe COVID-19 Cases Source: Worldometer 9. The COVID-19 impact was uneven throughout the country’s provinces, with Harare, Bulawayo, and Matabeleland South provinces being the most affected. 9 Table 1: COVID-19 Updates as at 30 December 2020 Province PCR Tests Cum Cases Recovered Active Deaths Cases Cases Bulawayo 589 3 381 2 985 301 95 Harare 1 401 3 816 3 154 506 156 Manicaland 112 939 671 229 39 Mash Cent 0 410 284 121 5 Mash East 61 691 583 95 13 Mash West 12 723 628 81 14 Midlands 31 1049 917 121 11 Masvingo 38 626 504 110 12 Mat North 10 544 438 103 3 Mat south 208 1446 990 444 12 Total 2 462 13 625 11 154 2 111 360 Impact on the Economy 10. The impact of the pandemic was mixed, being severe on sectors such as tourism, education, health, transport, trade and international commodity prices and less severe on agriculture, mining and manufacturing. Figure 3: Impact of COVID-19 on Economy 11. Inspite of lockdown measures introduced both domestically and internationally, Government allowed free movement of goods across borders, with restrictions 10 only on passenger traffic. This, therefore, limited severe impact on merchandise trade flows. 12. During the third and fourth quarter of 2020, further relaxation of trade restrictions saw exports picking up, driven by both firming of international commodity prices and volumes. Firming of most mineral prices such as gold, platinum, palladium and nickel resulted in increased revenues from merchandise exports, which increased by 3%, from US$4.28 billion in 2019 to US$4.39 billion in 2020. Similarly, merchandise imports grew by 4% to US$4.98 billion in 2020, from US$4.79 billion in 2019. Imports were driven by food and electricity imports. 13. As a result, the country’s external sector position improved, with the current account recording a surplus in 2020, preliminary estimated at US$1.1 billion against US$0.9 billion recorded in 2019. Travel Across Borders 14. During the second quarter of 2020, Zimbabwe imposed travel restrictions to contain the spread of the disease. As a result, tourism activity came to a standstill with occupancy rates falling below 10%. Signs of economic activity were only witnessed during the third quarter when the sector was allowed to gradually reopen. Other sectors 15. Notwithstanding the pandemic and effected restrictions, a number of companies in the manufacturing sector took advantage of the environment and increased their average capacity utilization and hence volumes. Such companies