Zimbabwe's GDP growth is expected to recover to 2.8 percent in 2017 from 0.7 percent last year driven by robust growth in agriculture which recorded a bumper maize harvest of 2.1 million tonnes, the World Bank said Wednesday.
Favorable rains and a revitalized agriculture sector were expected to underpin GDP growth in 2017, although growth was expected to taper off in 2018 and 2019 due to fiscal and structural reform challenges in the medium-term, the WB said.
"The incomplete implementation of fiscal adjustment policies and structural reforms, and the possibility that a rising money supply will boost inflation are likely to dampen Zimbabwe's medium-term growth outlook," the WB said in its second edition of the Zimbabwe Economic Update.
The Zimbabwe government has projected the economy to grow by 3.7 percent this year following good agriculture performance.
The World Bank said growing public debt burden and a large, fragmented public sector continued to threaten fiscal sustainability in Zimbabwe while the country's external position remained precarious.
Bond notes introduced by the central bank in November 2016 to ease liquidity challenges in the economy had been unable to address underlying macro-economic imbalances, the bank noted.
It said careful monitoring of the issuance of the bond notes was required to contain inflationary pressures.
It projected inflation to rise to 3.2 percent by end of 2017 and to accelerate to 9.6 percent by end of 2018.
While noting that Zimbabwe's long-term economic growth prospects were strong, the World Bank warned that Zimbabwe was in the medium-term expected to continue grappling with challenges of reducing fiscal deficit which widened to 10 percent in 2016 from 2.3 percent the previous year, attracting investment, managing inflationary pressures and restoring financial sector soundness.
"The government will need to accelerate the implementation of structural reforms to restore fiscal sustainability while freeing resources for infrastructure investment and poverty-reduction programming," the WB said.
It also urged the Zimbabwe government to cut down its wage bill, currently equivalent to 90 percent of public revenue and 66 percent of public spending.
Finance Minister Patrick Chinamasa said the high wage bill was not only contributed by central government alone but through state-owned enterprises and local authorities as well.
He lamented that state-owned enterprises and parastatals were a burden to the fiscus, and challenged the two sectors to bring down their wage bills. It was criminal, the minister said, for managers of loss making state-owned enterprises to request wage increases.
"If we can reform these two sectors, we can begin to see a much faster turnaround of our economy," Chinamasa said.
According to the World Bank, the overall net contribution of Zimbabwe's state-owned enterprises and parastatals to treasury is negative.
While government pumped in 135 million U.S. dollars into these entities between 2011 and 2015, taxes and dividends from these entities amounted to just 50 million, the World Bank said.
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