The Peer Review Panel – comprising SADC finance and investment ministers, and the region’s central bank governors – met virtually on July 15 to assess progress by member states towards achievement of agreed macroeconomic convergence (MEC) targets.
The review also identified risks to the region’s economic outlook and devised policy measures to mitigate these, in addition to considering a report on the outcomes of policy measures implemented in response to the impact of the COVID-19 pandemic on member states’ economic performance and against MEC targets.
The panel considered reports of the peer reviews of Angola, Namibia and Zimbabwe. This is the second time that the three member states have been peer reviewed since the SADC Macroeconomic Peer Review Mechanism was launched in May 2013 in Maputo, Mozambique.
The Panel noted the following:
The economy of the Republic of Angola, averaged a contraction of 1.3 percent in the last four years. In 2020, the economy is estimated to have contracted by 5.2 percent compared to a contraction of 0.6 per cent in 2019. The economy was severely affected by COVID-19 induced weak global oil demand which saw the oil price plummet to record lows in April 2020.
On the other hand, the implementation of structural reforms has contributed to the contraction of private consumption and low levels of public investments. Additionally, the declining oil export revenues poses increased downside risks to Angola’s economic growth and diversification efforts since it adversely affects investments to support the non-oil sectors, such as agriculture, fisheries, industry, trade, and construction.
The Kwanza significantly depreciated in 2016 on the back of lower oil receipts due to weak international oil prices. As a result, this constrained the supply of imported food commodities and average inflation accelerated to 41.2 percent in 2016.
Angola has been experiencing decline inflation since 2017. Inflation subsided from an average of 30.4 percent in 2017 to 17.1 percent in 2019, despite the exchange rate depreciation resulting from reforms initiated in 2018. The exchange reforms included adoption of the flexible exchange rate management regime from the fixed management regime to rebalance the foreign exchange market and to enhance the price discovery mechanism.
However, the negative effects of the COVID-19 pandemic resulted in average inflation increasing to 22.2 percent in 2020 from 17.1per cent in 2019. The build-up in inflationary pressures largely emanated from; supply constraints of goods and services; notable depreciation of the exchange rate; an increase in international prices of food commodities; and the implementation of VAT on the products in the basic basket as well as the incidence and worsening of customs duties on imports on the same products.
The underperformance of the oil sector and expenditures related responses to the COVID-19 pandemic has seen Angola’s recording budget deficit of 1.5 percent of GDP in 2020 from surpluses of two percent and 0.6 percent of GDP in 2018 and 2019 respectively. Resultantly, public debt as a percentage of GDP increased from 76.6 percent in 2016 to 113 percent and 129 percent in 2019 and 2020 respectively.
Angola’s external sector performance remains strong in terms of current account balance and the level of international reserves which remain above the SADC minimum threshold for both. Angola recorded current account surpluses for three consecutive year of 6.9 percent of GDP, 6.1 percent of GDP and 1.5 percent of GDP in 2018, 2019 and 2020 respectively. Resultantly, the level of international reserves in months of import cover continue on an upward trend from 7.5 months in 2018 to 9.3 months in 2019 and 11.5 months in 2020.
In view of the unfavourable international conditions for the oil sector, the government has adopted policy measures to consolidate public finances, strengthen financial management in the public sector, and to rebalance public spending for sectors with the potential to induce economic growth at medium and long term.
The Namibian economy is estimated to have contracted by eight percent in 2020 on the back of global travel restrictions and weakening prospects in the country’s main trading partners, namely South Africa, and Angola. Sectors such as mining, trade, financial services are estimated to have contracted in 2020.
Namibia has progressively met the SADC inflation target of 3-7 percent over the past years. The decline in commodity prices in 2020 allowed Namibia to record inflation rate of 2.2 percent which undershot the SADC lower bound. Government expenditure increased in 2020 to reach 41 percent of GDP in part due to the wide range of support measures rolled out by the Namibian authorities to COVID-19 affected sectors. As a result, the budget deficit widened in 2020 to 9.5 percent of GDP.
Government debt without guarantees rose in 2020 to about 55 percent of GDP. With guarantees factored in, the figure would stand at about 61 percent. Debt sustainability analyses by Namibian authorities in late 2020 showed that, barring any correction to the growth rate, debt may be unsustainable in the medium-term.
Zimbabwe continues to implement recommendations from the previous peer review and the National Development Strategy (2021–2025), which succeeded the Transitional Stabilisation Programme (TSP) successfully implemented between 2018 and 2020.
Zimbabwe’s economy rebounded in 2017 and 2018 when it grew by 4.7 percent and 5.5 percent, before contracting by six percent in 2019 and 4.1 percent 2020, largely due to poor weather conditions (severe droughts and the 2019 tropical Cyclone Idai); weak commodity prices; fiscal consolidation efforts adopted under the TSP; and the COVID-19 pandemic in 2020.
In 2021, real GDP growth rate for Zimbabwe is projected at 7.4 percent on the back of a good agriculture season resulting from favourable weather conditions during the 2020/2021 farming season. This is in line with the SADC macroeconomic convergence target of at least seven percent.
Zimbabwe’s inflation remained beyond the upper bound of the SADC target of 3-7 percent, averaging 173.3 percent and 654.9 percent in 2019 and 2020 respectively. The introduction for the foreign exchange auction system stabilised the exchange rate dampening inflationary pressures. As such, annual inflation is projected to recede to 134 percent in 2021 while end period inflation is expected at lower double-digit figures.
Fiscal reforms implemented under TSP resulted in a notable improvement of the budget balance from a deficit of 12.9 percent of GDP in 2017 to 0.5 percent of GDP in 2020, which is within the SADC threshold of not more than 3 per cent of GDP. Zimbabwe’s public debt levels remain high at 81 percent of GDP in 2020 from 67.5 per cent of GDP in 2017, with substantial amount in arrears. This is beyond the SADC ceiling of 60 percent of GDP.
The panel approved the Mission Review Reports and recommended policy proposals for Angola, Namibia and Zimbabwe. It welcomed the commitment by the authorities of the three member states to implement the recommendations.The panel commended eSwatini, Malawi, Mauritius and Mozambique for undertaking the peer reviews of Angola, Namibia and Zimbabwe. The panel agreed that eSwatini, Mauritius, Mozambique, South Africa and Zambia would be the next member states to be peer reviewed during 2021/2022. – SADC