Credible elections could prompt de-dollarisation in Zimbabwe
Last week President Emmerson Mnangagwa completed his first 100 days in office, promising a break with the past and a business-friendly environment
Increased public support for Zimbabwe’s governing Zanu-PF party since the ousting of Robert Mugabe in November will translate into a better environment ahead of the forthcoming elections, according to Business Monitor International (BMI), a member of the Fitch group.
Zimbabwe’s next elections are due to be held in July or August — the first to be held without Mugabe’s participation since independence in 1980. The new president, Emmerson Mnangagwa, has just completed his first 100 days in office, promising a break with the past and a business-friendly environment.
Mnangagwa has also committed to free and fair elections, saying international observers — largely banned under Mugabe save for those from a few friendly countries and organisations such as the African Union — will be allowed to monitor the process.
This time around, the envisaged closer scrutiny from the international community, along with Zanu-PF’s improved image and weak opposition parties mean that "we see little reason to expect the same degree of voter intimidation and electoral fraud that has marred the results of previous votes", BMI said.
Should Mnangagwa secure a legitimate mandate, this would likely see the government press ahead with reining in the high fiscal deficit, following slower revenue growth and runaway spending by the previous administration.
"While the economy faces myriad challenges, we believe that the administration will see fiscal reform as a key reform priority, because success would allow for re-engagement with the international community and boost access to crucial aid and investment," BMI said.
However, progress on fiscal consolidation would be slow, not least because public sector salaries account for 90% of government revenues. Cutting other spending would also be difficult, with BMI expecting the budget deficit to remain over 5% of GDP at least until 2021.
It is unlikely that the government will be able to clear of all of its $1.8bn arrears to the International Monetary Fund (IMF) and the African Development Bank without substantial debt forgiveness.
But BMI does not think this entirely shuts the door to the re-opening of lines of credit. From 2015 the IMF changed its policy on lending to sovereign debtors in arrears, allowing the possibility of renewing its relations with the Zimbabwe government.
The expected influx of foreign funding would be a step towards boosting business confidence, and a move towards the possible de-dollarisation of the economy. In recent years, economic activity has been hampered by a lack of liquidity, a problem that BMI does not believe will disappear overnight.
Desirable as it could be, the reintroduction of a local currency would be a painful process. "We believe that this is necessary to ensure the sustainability of the exchange rate regime and restore economic competitiveness, and note that following re-engagement with the international community, the government will be placed to take this step," BMI said.
However, the organisation says an underlying risk is that an election deemed to be fraudulent would not unlock the desired relationship between Zimbabwe and foreign funders, save for ties with the likes of China and the IMF.