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Zim economy fragile despite falling oil prices

Mar 10 2015 13:03
Memory Mataranyika

Harare - Falling oil prices on global markets will help struggling Zimbabwe save as much as US$180m, said the country’s Finance Minister Patrick Chinamasa, but the International Monetary Fund (IMF) said the country's external position remains "precarious" despite the favourable impact of lower oil prices.

Chinamasa said on Monday that Zimbabwe will this year ratchet up a fuel import bill of about $1.22bn.

Obtaining lower oil prices will help the country save as much as $180m overall, compared to last year's fuel import bill.

READ: Zim needs investor-friendly policies - mine chiefs

"My expectation is that consumers and businesses will spend a reasonable portion of the savings from lower fuel prices on productive sectors," Chinamasa said.

However, Zimbabwe's economy is unlikely to benefit significantly from the lower oil prices as its external sector remains precarious,  according to the IMF's Dominico Fannezi, who headed a policy review mission to Zimbabwe.

Energy Minister Samuel Undenge now requires that petroleum companies in Zimbabwe review diesel and petrol prices every two weeks.

According to Undenge, the fortnightly reviews ensure a quick response to movements in international oil prices. Petrol prices in Zimbabwe are between $1.42 and $1.50, while diesel is around $1.32.

The IMF's head of the mission to Zimbabwe however said on Monday night that "despite the favourable impact of lower oil prices, the external position remains precarious, and the country is in debt distress".

READ: Zim needs credible plan to clear arrears - IMF

Zimbabwe's economy is battling tight liquidity challenges and subdued investment inflows. Industry and manufacturing have sagged to below 38% while productivity in the crucial mining industry has also gone down.

The mineral-rich country is struggling to repay the nearly $10bn it owes domestic companies and international lenders.

International financiers such as the IMF have said Zimbabwe should clear its arrears before being allowed to access fresh capital.

Industry Minister Mike Bimha said struggling local companies are owed huge amounts by the government, a situation which worsens their plight. By the end of 2014, Zimbabwe's domestic debt had bloated to $1.1bn.

"A number of local companies are owed to a large extent by government departments, causing great distress and viability problems. This is worsening the liquidity situation for the productive sector," said Bimha.

patrick chinamasa  |  zimbabwe  |  africa economy
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