Zim reclassified to middle income economy, what does it mean for you?

The world bank recently reclassified Zimbabwe to a Lower middle-income economy up from being rated low income. To understand what this means for Zimbabweans we have to understand the methodology and look at the means of measurement as well as a few developments in the country.

Finance Minister Mthuli Ncube’s Transitional stabilization program has been described as a shape shifting policy that seems to fit whatever size hole it is needed to plug. None the less this is the document upon which he based plans for Zimbabwe to be a middle-income economy by 2030.

The world banks classification is based on Gross National Income per capita (GNIC). Simply put the GNIC is the total earnings of a nation including amounts earned outside its borders and jurisdiction divided by the number of people in the nation. So we can already see that as a measure it is largely academic as it does not take into account the actual distribution of the income.

The classification based uses income bands to rate countries and the bands are what have changed. The bands or levels are adjusted for inflation derived from the Special Drawing Rights (a special UN “currency” that is linked to all other currencies) deflator. So in the previous year, anything below US$995 was considered low income. US$996 to US$3895 was considered low middle income and US$3896-US$12055 was the marker for our high middle income promised land.

The new classification places the low income US$1025 and below. US$1026 – US$3995 now stands the lower income level while the upper middle also shifts to US$3996 – IS$12375. Zimbabwe’s GNI per capita previously at US$910 (July 2017) now is measured as US$1790 (July 2018). So our GNIC is up, how is this possible while the economy is burning? Firstly I did mention that as a measure GNIC doesn’t take into account the distribution of income. Secondly, the measurement of our earnings is very difficult given that currency issues we’ve been going through and this may have had a heavy impact on the outcome.

What does it mean?
Finally the question you want to be answered; what does it mean for you? Quite frankly nothing. If you didn’t feel wealthier before this announcement you certainly won’t feel any wealthier after. While the economic data is useful in assessing the performance of an economy to some extent it is never the full picture. We can reasonably expect finance minister Mthuli Ncube to take this as a feather in his cap. Outside of that life goes on.