ZIMBABWE’s current account is expected to post a larger surplus of around US $ 1.091 billion this year, higher than the Reserve Bank of Zimbabwe’s (RBZ) initial projection of US $ 611.5 million.
In an economic update from September 21, 2021, however, the monetary authorities said that inflation at the end of the project year could be slightly higher, between 35% and 53%, compared to the initial projection of between 25% and 53%. % and 35%.
The southern African country managed a current account surplus of $ 920 million in 2019 when it reportedly recorded a surplus of $ 1,096 billion last year, a feat that could be repeated this year.
Current account surpluses refer to positive current account balances, which means that a country has more exports than imports of goods and services. It can also involve a country capable of meeting all of its external obligations.
As a rule, a current account surplus implies an inflow of foreign currency greater than that of outflows. It contributes to an increase in reserves, which is essential to maintain the stability of the financial and external sector. The RBZ said the current account surplus continued to be fueled by diaspora remittances and other transfers, as evidenced by the increase in the secondary income balance by nearly 50% during the first semester 2021 compared to the same period in 2020.
Merchandise exports grew 22.8% from US $ 2,285 billion in the first half of 2020 to US $ 2,590 billion in the first half of 2021; due to the good performance of primary exports, including mineral exports.
The central bank said the strong performance of the external sector had also led to a significant increase in nostro foreign currency balances, which now stand at $ 1.7 billion.
Assuming at least US $ 500 million in cash outside the banking sector, this translates into foreign currency holdings of over US $ 2 billion against the equivalent of about US $ 300 million in reserve money readily available for transactions.
RBZ Governor Dr John Mangudya said under normal circumstances a current account surplus should signal a stronger or stable national effective exchange rate, but Zimbabwe did not.
“These developments mean that the country is currently generating enough foreign exchange to support the economy.
“Under normal circumstances, a strong external sector position signals a stronger nominal effective exchange rate,” he said.
The position of the external sector is expected to remain favorable, supported by a strong recovery in the world economy, which is expected to register strong growth of 6% in 2021, against a negative growth rate estimated at 3.3% in 2020.
In addition, Dr Mangudya said, international commodity prices are also on the rise, driven by a strong recovery in the global economy. In addition, tobacco prices have also
Gross domestic product growth is expected to remain unchanged at 7.8% in 2021.
The strong growth of the economy is anchored on a better rainy season 2020/21, higher international prices of mineral raw materials, a stable macroeconomic environment and a moderate Covid-19 pandemic.
This growth is driven by higher growth in agriculture, power generation, accommodation and food services, and financial services.
Worryingly, the central bank governor noted, developments in the parallel currency market are expected to put further inflationary pressures on the economy.
“The country recently experienced a further depreciation of the parallel market exchange rate from around $ 130 per US dollar to around $ 160 per US dollar, implying a parallel market premium of over 70%,” did he declare.
In view of recent developments, annual inflation is expected to end the year between 35% and 53%, up from the revised final targets of 25% to 35%.
In addition, rising international food and oil prices as well as global inflation continue to put additional inflationary pressures on the domestic economy, the central bank said.