5.1. Overview
- From 1996 to 1999, the economy could afford a significant current account deficit since the capital account was in surplus. There were adequate levels of foreign direct investment and capital inflows from international development partners. However, since the year 2000, the situation completely changed, as most international cooperating partners withdrew support, and there are very little inflows through direct, as well as portfolio investment; resulting in a deterioration in the capital account deficit as shown in (Table 7).
- At the same time, the current account - the combined outcome of foreign trade, service transactions, factor income and current transfers - has been facing serious problems, mainly due to poor export performance. This, coupled with under performance of the capital account, resulted in a significant deterioration in the overall balance of payments position as follows:
- current account deficit stood at US$201 m;
- capital account deficit was US$424m; and
- Overall balance deficit was US$625m.
- During the same period, capital inflows plummeted drastically due to lack of donor support, lower offshore finance activities and a fall in external loan disbursements for on going projects.
- The demand for foreign exchange continued to outstrip supply, as the country's stocks of international reserves hit record low levels. This adversely affected the country's capacity to meet its external debt obligations, and provide for the payment of critical imports such as fuel, electricity, machinery, spare parts and raw materials.
5.2. Exports and Imports
- Exports are estimated to have declined by 4.3% in 2001, (see Table 8). Rising production costs and high inflation, against a fixed exchange rate, compromised competitiveness and worsened performance of exports.
- Imports, on the other hand, are estimated to have grown by only 1.6% in 2001, (see Table 9) due to shortages of foreign currency, as already mentioned.
5.3. Capital Account
- Deterioration in the capital account has been recorded since 2000. Capital inflows, both long and short-term, as well as foreign direct investment have been constrained due to:
- the negative image of the country as a business destination;
- continued withdrawal of donor finance for economic development;
- low export performance; and
- unfavourable macroeconomic and socio-political environment, which failed to attract foreign funds.
5.4. Arrears
Total external payments arrears continued to build up, reaching US$762.7 million, by the end of December 2001. The breakdown of the arrears is as follows:
- Government - US$497.2 million;
- Parastatals - US$220.6 million; and
- Private sector - US$45 million.
In 2001, external payments arrears for the private sector declined from US$74.9 million in January, to US$69.2 million in June and US$45 million in December, largely because the private sector has been making efforts to settle their arrears.
- The continued accrual of arrears is impacting negatively on the country’s credit worthiness. It should be noted that arrears are a recent development for Zimbabwe; up to 1999, the country was meeting its external debt obligations on time.
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