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Zimbabwe Country Risk Report Q1 2016

Zimbabwe Country Risk Report Q1 2016

Core Views

Growing signs of internal divisions in the ruling Zimbabwe African National Union Patriotic Front (ZANU-PF) adds to existing uncertainty over the future of politics in Zimbabwe once 91-year-old President Robert Mugabe retires or dies. Against this backdrop, a worsening economic climate will put added pressure on government stability.

Political and policy uncertainty will continue to deter much-needed investment into the moribund Zimbabwean economy, while a weak harvest, depreciating South Africa rand, and lower commodity prices will also weigh on short-term economic activity.

The Zimbabwean economy will remain near deflationary territory over the coming quarters thanks to weak demand, a depreciating South Africa rand, and lower oil prices.

Major Forecast Changes

We forecast real GDP in Zimbabwe to reach 1.1% in 2016, following a slip into recession in 2015 at -0.9%. This marks a downward revision of our earlier forecast of 2.4% and 2.8% for 2015 and 2016 respectively.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Succession Question Prompts Heightened Instability
Political instability in Zimbabwe will increase in the next two years, ahead of the 2018 general election. The ruling ZANU-PF party looks
set to retain dominance, though succession questions will intensify as ailing President Robert Mugabe's rule approaches its end.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Elevated Political Risk Ahead of 2018 Elections
Zimbabwe will become increasingly unstable over the coming years, as President Robert Mugabe's rule approaches its end. The ruling
ZANU-PF party looks set to retain dominance under First Vice-President Emmerson Mnangagwa, but a power struggle is likely, posing
a greater challenge to the regime as the 2018 elections approach. Over the longer term, Mugabe's exit will present new opportunities for
the opposition to gain influence and win power in the early 2020s.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Mineral Price Collapse Will Dent Growth Outlook
Exposure to adverse weather conditions, a collapse in mineral demand and a dim outlook for the consumer sector will keep a lid on
economic growth in Zimbabwe in 2016, pushing it barely out of recessionary territory entered in 2015.
GDP By Expenditure Outlook
TABLE: 10-YEAR ECONOMIC GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
C/A Deficit Maintained On Trade Slowdown
Zimbabwe's current account will remain deeply in the red in the next two years given the weak outlook for key commodity exports
and increasing imports as a weak rand keep South African imports cheap. Meanwhile, the successful renegotiation of debt-terms with
international creditors in October 2015 will not automatically unlock new funding.
TABLE: CURRENT ACCOUNT
Fiscal Policy And Public Debt Outlook
New Debt Terms Will Bring Few Near-Term Benefits
The recent renegotiation of Zimbabwe's debt-terms with international creditors will not automatically unlock new funding options nor
stabilise Zimbabwe's fiscal position. The government's ability to finance the budget in FY2015/16 will be hampered by a drop off in fiscal
revenues due to declining output in the mining and agriculture sectors, which is weighing on income, customs and sales tax revenue.
TABLE: FISCAL POLICY
Monetary Policy
Currency Dynamics Will Contain Price Pressures
Zimbabwe's dollarised economy will continue to import deflation in Q116 given the cheaper cost of South African imports on the back of
a depreciating South Africa rand versus the US dollar.
TABLE: MONETARY POLICY
Chapter 3: 10-Year Forecast
The Zimbabwean Economy To 2024
Resource Powered Growth
The performance of the Zimbabwean economy will remain inextricably linked to the policy and political climate over the coming years.
Although the trajectory of this is difficult to predict, at this juncture we believe that the economy will expand but only at a very subdued
rate as much-needed foreign investment will remain at bay owing to nationalistic policies of the ZANU-PF dominated government.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Education
TABLE: SUB-SAHARAN AFRICA - EDUCATION RISK
Government Intervention
TABLE: SUB-SAHARAN AFRICA - GOVERNMENT INTERVENTION RISK
TABLE: INCOME TAX LEVELS
Chapter 5:BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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