Country Report Zimbabwe September 2010

Outlook for 2010-11: External sector

Plans to hold regular auctions of diamonds could boost Zimbabwe's export earnings, but sales thus far suggest that the value of the country's diamond stockpile is at the lower end of estimates, at US$350m-450m. Ferro-alloys, gold and-in particular-tobacco will therefore continue to dominate export earnings. However, both exports and imports are likely to increase in 2010 (the latter financed by increased domestic credit and higher humanitarian assistance). The strong performance of the tobacco sector in the 2010 season is likely to encourage farmers to seek to boost output in 2011, but agricultural sector growth will be partly dependent on climatic conditions, while expansion of the crucial mining sector will be influenced by international mineral prices, the government's approach towards international investment-specifically, mandated levels of local ownership of major projects-and possible power shortages. As a result, growth in both exports and imports will moderate in 2011. Since tourism will recover only slowly, we expect the services account to remain in deficit in 2010-11. The income account is also set to remain in deficit, even though the repatriation of profits and debt-service payments will be limited. Only the current transfers account will be in surplus: remittances by the 3.5m-plus Zimbabweans living abroad are likely to improve as the global economy starts to recover. With percentage growth in export earnings outstripping expansion of imports, the current-account deficit as a percentage of GDP is set to shrink sharply, but will still remain high, at 37% of GDP and almost 22.5% of GDP in 2010 and 2011 respectively.

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