A few months ago Zimbabwe had been rated as a lower-middle-income economy by the World Bank after reclassification of income bands. Now the nation has been downgraded to a low income economy. This comes after Gross Domestic Product growth forecasts for the economy were revised to -7%, a contraction. Low-income economies are classified as having a Gross national income per capita (person) of US$910 per annum.
Zimbabwe has suffered many unforeseeable shocks including a poor rainfall season and the effects of cyclone Idai both having an impact on the agricultural output of the nation. In addition to that, the nation has also grappled with the poor policies on both the fiscal and monetary front which have left the nation reeling. The IMF, who Zimbabwe has a staff monitored program with, candidly pointed out that the economic policies being pursued by the nation were counterproductive
The gross domestic product and gross national income are measured in US dollars and this presents a specific problem for Zimbabwe’s forecasts. The currency, since its introduction in February, has significantly depreciated. To date losing over 80% in both the parallel market and the controlled interbank market since February when the currency was allowed to trade and the imposed US dollar parity was scrapped.
The Economic Intelligence Unit forecasts a 2019 GDP growth for Zimbabwe of -18%. That’s more than double the contraction the IMF has forecast. This may be due to the exchange rate used in arriving at the US dollar value. While the government uses the interbank rate which is controlled and not fully reflective of all conditions present, the EIU may have used the parallel market rate. The parallel market in addition to being open to all participants predates the interbank market. Presently the interbank rate stands at 15.44 to the US dollar while the parallel market values the Zimbabwean dollar at 20.8 to the US dollar.
Zimbabwe has a largely informal economy which has only been fed by the economic crisis in the nation with more and more activity moving off the books as it were. This, of course, presents some difficulty in measurement. While the grading of Zimbabwe as a lower-middle-income economy meant very little for Zimbabweans it’s downgrading to low income only serves to confirm what Zimbabweans know and experience on a daily basis. One thing is certain though, Zimbabweans are in trouble as the economy continues to shrink.