ZIMBABWE CONGRESS OF TRADE UNIONS (ZCTU) ANALYSIS OF THE 2025 MID-TERM BUDGET AND ECONOMIC REVIEW

1.0       Introduction and Background

The 2025 Mid-Term Budget and Economic Review with the theme “Building Resilience for Sustained Economic Transformation” was presented to Parliament by the Minister of Finance, Economic Development and Investment Promotion Hon. Prof. Mthuli Ncube on 31 July 2025. The mid-term 2025 budget and economic review noted that despite the fast-changing global environment, implementation during the first half of the year was on course. This was on account of a better than anticipated agricultural season because of good rainfall. The resultant significant water inflows at Kariba Dam helped improve electricity generation at Kariba Hydro-Power Station.

The relative economic stability in terms of inflation and exchange rate during the first half of 2025 on the back of tight monetary and fiscal policies as well as a positive current account anchored the economic recovery. Thus, despite the slowdown in global economic growth from the original IMF forecast of 3.2% of October 2024 to a revised level of 2.8% in 2025, domestic economic growth is anticipated to achieve the target of 6%, up from the estimated growth of 1.7% in 2024. This projected outlook is also better than that for Sub-Saharan Africa and the SADC region, where economic growth is now anticipated to decline from 4.2% and 3.3%, to 3.8% and 2.8% in 2025, respectively.  This is on account of climate change, weak global demand, declining commodity prices and tighter financial conditions, with those countries heavily dependent on U.S. trade being hardest affected.

Largely reflecting rising global economic instability associated with worsening trade tensions and heightened trade policy uncertainty, economic growth in advanced economies, and emerging markets and developing economies is expected to slow-down by 0.5 percentage points from the earlier estimates for 2025 to 0.4%. As a result for Zimbabwe, revenue collections during the first half of 2025 were generally above target in real terms.

The World Bank forecasts a 12.4% decline in the global commodity price index in 2025, and the base metal price index by 9.3% in 2025, which will negatively affect the economy as a net exporter. However, the projected drop in the energy price index of 17.4%, and the decrease in oil prices in 2025, as well as the expected increase in the precious metals price index by 33% in 2025 on account of geo-political tensions and the preference for gold as a safe haven by investors, should have a positive impact on the Zimbabwean economy as a net fuel importer and exporter of the precious mineral. The same effect is expected from the projected rise in global prices of agricultural raw materials in 2025.

The anticipated impact of the geo-political tensions and tariff escalation on inflation appear to be moderate. Global headline inflation is expected to reach 4.3% in 2025, 0.1 percentage point above the 4.2% projected in October 2024. It is projected to ease slightly to an average of 2.5% in 2025 in advanced economies, and to moderate to 14.4% by year end in Sub-Saharan Africa on the back of efforts to stabilise prices.

However, the unexpected withdrawal of development partner support presented its own challenges that required realignment and adjustment of the budget, including innovative financing mechanisms. The uncertainty arising from geo-political tensions, the imposition of trade and retaliatory tariffs impacted negatively on international trade as reflected in declining international mineral commodity prices, except for few minerals, including gold. These unanticipated changes in the global economy required the adoption of measures to strengthen domestic resource mobilisation and reduce donor dependency.

2.0       Analysis of the 2025 Budget and Economic Review

2.1       Revised National Accounts by ZIMSTAT and Projected Economic Performance

2.1.1   Revised National Accounts

Significantly, the 2025 mid-term budget and economic review cited the revised national accounts for the year 2023 by ZIMSTAT. This rebasing exercise resulted Zimbabwe’s GDP for 2023 being revised upwards to ZWL168.8 trillion (US$44.5 billion) from the earlier estimate of ZWL133.7 trillion (US$35.2 billion). As a result, the nominal GDP for 2024 now stands at an estimated ZiG822.9 billion (US$45.7 billion) and that for 2025 is projected at ZiG1.5 trillion (US$48.5 billion). This yields a Gross National Income (GNI) per capita of US$2,893 as at 2024 as opposed to US$2,214.5 before the revised national accounts.

The result of this revision of national accounts is that the revenue-to-GDP ratio declines from 14.6% to 11.6% in 2023, and from 18% to 14.3% in 2024. The ratio of public debt to GDP in US$ terms also declines to 46.5%, from 60.6% in 2024, which is now way below the Sub-Saharan average of 61%. As the mid-term budget and economic review correctly observes, this therefore would imply that the country is not over-indebted but rather has a debt service and liquidity challenge. However, while the debt-to-GDP ratio would appear relatively contained, getting to debt sustainability would require the resolution of the large stock of arrears as well as addressing the current liquidity pressures.

In terms of sectoral contribution, manufacturing becomes the dominant sector accounting for 15.3% of GDP, followed by mining and quarrying (14.5%), wholesale and retail trade (11.9%), financial and insurance services (10.8%), and agriculture (9.3%). Before the revised national accounts, the structure of the economy was such that wholesale and retail trade came first at 19.2%, followed by mining and quarrying at 12.8%, manufacturing (12.4%), agriculture (11.2%), and financial and insurance activities (7.2%) in 2024.

2.1.2   Projected Post-Drought Economic Recovery: Quantum of Growth Matters as Much as its Quality

Interestingly for Zimbabwe, despite the headwinds arising from the geo-political tensions and escalating tariff wars, declining international mineral commodity prices and the subdued global economic environment, the growth rate of 6% as projected in the 2025 National Budget stands, as confirmed by the AfDB, IMF and World Bank. This growth is expected to be driven by the agriculture sector, which is projected to grow by at least 21%, as well as improved electricity generation and low inflation and relatively stable exchange rate. In fact, all sectors of the economy are expected to experience growth. From the demand side, increases in private and public consumption as well as improved growth in both private and public investment are expected to drive the growth.

It is important to take note that the projected economic growth is mainly associated with post-drought recovery. In addition, as in the past, the growth rates tend to be erratic, characterized by stop-start episodes. Moreover, while the quantum of growth matters, its quality is equally important. Regrettably, as NDS 1 aptly observed, “…despite having experienced episodes of significant growth in the economy, this has not translated into notable decent employment generation. The growth remained relatively non-inclusive, thus, benefitting a few,” (2021-25:57).

Lessons from experience suggest that growth is a necessary but insufficient condition for poverty reduction and its eradication as the link between growth and poverty reduction is not automatic. Growth is seen as a means rather than an end. Such an approach acknowledges that a country may achieve high levels of growth, but that does not mean it has a high level of human development. What is critical for human well-being, therefore, is the quality and distribution of growth, not just its quantity.

In the apt words of the UNDP, “The economics of growth and its relationship with development, in particular, require radical rethinking. A vast theoretical and empirical literature almost uniformly equates economic growth with development … The central contention of the human development approach, by contrast, is that well-being is about much more than money: it is about the possibilities that people have to fulfill the life plans they have reason to choose and pursue. Thus, our call for a new economics – an economics of human development – in which the objective is to further human well-being and in which growth and other policies are evaluated and pursued vigorously insofar as they advance human development in the short and long term,” (2010:12).

2.1.3   Subdued Inflationary Pressures in the Context of Austerity Measures: Rising Inequality, Devaluation of Labour and Extreme Poverty

The inflation outlook remains subdued. While monthly ZiG inflation had increased from 3.7% in December 2024 to 10.7% in January 2025, it averaged 0.5% from February to June 2025. Annual ZiG increased from 85.7% in April to 92.1% in May and 92.5% by June 2025. This elevated annual inflation is associated with the base effect relating to the once-off depreciation of ZiG/US$ exchange rate on 27 September 2025. As such, annual ZiG inflation is projected to decline from October 2025 as the base effect would have run its course. Between February and June 2025, the US$ month-on-month inflation rate averaged 0.01%. While annual USD inflation had declined from a peak of 4.2% in September to 2.5% by December 2024, it increased sharply to 14.6% in January and 15.1% in February before declining marginally to 15.0% in March, 14.4% in April and 14.0% in May and June 2025.

While the inflationary outlook looks encouraging, however, the negative impact of prolonged austerity needs to be taken into consideration, and particularly the impact on social development. This is particularly critical in the context of the ‘new dispensation’ in that since the elections of 30 July 2018, the authorities have experimented with various currency reforms and have implemented various austerity measures during the past seven years. As studies elsewhere have consistently showed, stabilisation / austerity measures tend to be pro-cyclical, often exacerbating crises.

An overly tight monetary policy framework has resulted in artificial shortages of the domestic currency, amidst a rapidly dollarizing economy. Moreover, it has been observed that government has not been meeting some outstanding payments to service providers, which may characterise the stability as to some extent contrived.

Workers have borne a disproportionate burden of austerity and adjustment, with their earnings reduced to nothing. Zimbabwe has recently experienced a surge in job losses due to retrenchments, with both state-owned and private companies cutting staff. The Labour Force Survey data suggests that unemployment in recent times increased from 14% in 2019 to 19.1% by Q4 2022 to 19.3% in Q1 2023, 19.7% in Q2 2023, 21% Q3 2023, and 21.8% by Q3 2024.

The recent strike by University of Zimbabwe staff exposed the extent of the erosion of salaries in that while pre-October 2018 junior lecturers earned on average US$2,250 per month, this has been whittled down to the current take home salary of only US$230 plus a local currency component of less than ZiG8,000 – worth under US$200 – an effective salary cut of 87%. The slow pace of wage adjustment is reflected in that the minimum wage which was negotiated at the Tripartite Negotiating Forum (TNF) of USD150 (or its ZiG equivalent) per month was approved by Cabinet in October 2022, and only gazetted on Friday, May 23, 2025.

Persistent de-industrialization and informalization of the economy remains a major challenge in that as a result the economy is moving from a relatively high productivity and income path to a lower productivity and income path. While informal employment as a percentage of total employment stood at 76% in 2019, by 2022, it had risen to 88% and as per Q3 2024 stands at 86%. Yet the plan under NDS 1 was to increase the level of formal employment from 24% in 2020 to 30% by 2025. As the World Bank Country Economic Memorandum of 2022 pointed out, labour productivity in a median informal firm is one-tenth that of a formal firm of similar size, suggesting a relatively high productivity gap of nearly 90%. In addition, only 33% of workers in Zimbabwe receive a salary, well below peers in the region and globally, suggesting a limited share of quality jobs despite relatively higher skills.

Furthermore, a singular focus on inflation-targeting can easily undermine other equally important social objectives, including employment promotion. While more than half of the 44 countries in Sub-Saharan Africa with available poverty-trend data have experienced a reduction in people living in extreme poverty since 1990, 18, including Zimbabwe, have experienced an increase. According to World Bank data, in Zimbabwe, the headcount of people living in extreme poverty increased by 29% between 1990 and 2022. The 2023/24 El Nino event caused severe drought in Zimbabwe and across Southern Africa, which is expected to have worsened the poverty situation. The World Bank’s poverty report shows that inequality as measured by the gini index has increased from 42% in 2011 to 44.7% in 2017 and 50.3% by 2019. Critically, therefore, while macroeconomic stability is important, it remains a means and not an end. Therefore, macroeconomic stability is a necessary, but insufficient condition for socio-economic development, including employment promotion.  

An IMF Discussion Note observes that income inequality and the distribution of income matters for growth and its sustainability.[1] Inequality is found to negatively affect growth and its sustainability. In its analysis, an increase in the income share of the top 20% (the rich) is associated with declining GDP growth over the medium term. Conversely, raising the income share of the bottom 20% (the poor) results in higher GDP growth. Hence, they conclude that the poor and middle class matter the most for growth through interrelated economic, social, and political channels.

One such channel through which higher inequality lowers growth is by reducing access by lower-income households to health and their ability to invest in physical and human capital. Inequality can result in poor households underinvesting in, or their children accessing lower quality education, resulting in sub-optimal levels of labour productivity compared to what would pertain in a more equitable environment. Increasing concentration of incomes has the potential to reduce aggregate demand and growth, given that the rich tend to spend a lower fraction of their incomes compared to those from middle and lower-income groups. Thus, income inequality holds back the pace at which growth reduces poverty. Hence, growth is less efficient in reducing poverty amongst countries with high initial levels of inequality or where the pattern of growth favours the rich.

As highlighted in the World Bank’s ‘The Growth Report: Strategies for Sustained Growth and Inclusive Development,’ “Inequality of opportunity also sows longer-term dangers. If one group is persistently and flagrantly excluded from the fruits of growth, the chances are they will eventually find a way to derail it,” (2008:62). In the same World Bank Report, the renowned economist Robert Solow summed it up so well when he noted that: “In many ways, the more equitable the growth, the more sustainable it’s likely to be, because there will be less controversy, less disagreement, less resistance, and also there’s an enormous amount of talent in populations that needs to be tapped. Excluding some parts of the population, whether by gender, age, or ethnicity, from the benefits of growth loses the talents that they have. So in my view, it is not only desirable that they go together, it’s useful that they go together,” (2008:62).

As the World Bank Growth Commission Report concluded, “It is our belief that equity and equality of opportunity are essential ingredients of sustainable growth strategies,” (2008:60).

2.1.4   External Sector Resilience…

The 2025 mid-term budget and economic review further notes that despite the subdued global economic environment, geo-political and trade tensions, policy uncertainty and low international commodity prices, Zimbabwe’s external sector remains resilient as foreign currency receipts increased from US$4.9 billion in 2024 to US$6 billion in 2025 during the period January to May, an increase of 30.2%. This growth was mainly driven by export receipts, diaspora remittances and loans to the extent that export receipts and international remittances accounted for 55.9% and 23.4% of the total receipts, respectively.

During the period January to May 2025, merchandise exports increased by 11.4% to US$3.1 billion compared to the same period in 2024, driven mainly by strong exports of gold. Gold exports surged from US$739.7 million to US$1.4 billion, an increase of 93% during the first five months of 2025 relative to the same period in 2024. Owing to lower global commodity prices, almost all other export products recorded a decline during the first five months of 2025 compared to the same period of 2024. Importantly, merchandise exports are projected to increase from US$7.8 billion in 2024 to US$8.4 billion by end of 2025, an 8.4% improvement. Meanwhile, remittances increased by 7.1%, from US$593.2 million in the first quarter of 2024 to US$635.2 million in 2025. The projections to year-end 2025 are that remittances will increase by 4.9% from US$2.6 billion in 2024 to US$2.7 billion in 2025.

Merchandise imports grew by 5.2% from US$3.83 billion to US$4.03 billion during the first five months of 2025 compared to the same period in 2024. This increase is attributable to higher import volumes of food, fuel and gas. Merchandise imports are projected to increase from US$9.1 billion in 2024 to US$9.3 billion in 2025, a 2.1% increase. This increase is driven by non-food imports such as fuel, machinery and raw materials as food imports are projected to decline markedly during the second half of the year because of the anticipated good harvest in the 2024/25 agricultural season.

Direct investment inflows increased from US$103.5 million during the first quarter of 2024 to an estimated US$184.9 million in corresponding quarter of 2025. These inflows mainly involved capital equipment to the mining and manufacturing sectors. Such direct investment inflows are projected to reach over US$600 million in 2025, mainly to the energy, mining and manufacturing sectors.

As such, the improvement in foreign currency receipts had a positive impact on the country’s balance of payments. Resultantly, the country’s current account balance is projected to record a surplus of US$19.9 million during the first quarter of 2025 compared to US$152.2 million achieved during the corresponding period in 2024. This surplus is attributed to resilient remittances and significant growth in exports, particularly gold. Of noteworthy is that the current account surplus is projected at US$621.7 million by year-end 2025, up from the US$501.2 million in 2024. The non-marginal increase is driven by elevated gold export receipts and remittances, a development that is most encouraging to anchor exchange rate stability and the accumulation of reserves.

2.1.5   Financial Sector Developments and Outlook…

As with previous budget statements, the 2025 mid-term budget and economic review paints a rosy picture of the financial sector in Zimbabwe as follows; “The financial sector is witnessing stability and continues to demonstrate resilience on the backdrop of supportive fiscal and monetary measures,” (paragraph 157:62). With specific reference to the banking sector, it adds, “The aggregate banking sector performance was underpinned by robust capitalisation, satisfactory asset quality and profitability, as well as strong liquidity positions,” (paragraph 159:63).

However, the general perception of the population about the financial services sector suggests a lack of trust and confidence. This issue was well articulated in the February 2025 Monetary Policy statement under the heading “Abuse of safe deposit boxes to by-pass formal banking channels,” as follows: “The Reserve Bank has noted with concern the increasing abuse of safe deposit boxes and the proliferation of “shadow banks”. It has been observed that some businesses are not banking all or most of their cash receipts and are, instead, keeping such cash in safe deposit boxes held with financial institutions and security companies,” (paragraph 225:72). It noted that this trend is a violation of the Bank Use Promotion and Suppression of Money Laundering Act [Chapter 24:24] which requires businesses to bank all their cash receipts, and that it also promotes tax evasion and money laundering.

Notwithstanding the fact that as of 31 December 2024, all banking institutions’ prudential liquidity ratios averaged 58.84%, more than the regulatory minimum of 30%, trading on the interbank market remains limited, resulting in temporary liquidity shocks for some banking institutions. This issue was raised in the February 2025 Monetary Policy Statement. Furthermore, the banks’ profits are largely derived from non-core business, mainly charges. This is worsened by the Intermediated Money Transfer Tax (IMTT) which penalizes transacting through the banks. As result, the greater public has resorted to the risky ‘mattress banking.’

The financial services sector is largely reflecting a dollarizing economy where foreign currency deposits accounted for 86.17% of total deposits as of 31 December 2024, and 98% of the total microfinance deposits as of January 2025. Regrettably, credit to the private sector was mainly channelled to households (27.2%), agriculture (17.3%), manufacturing (13.6%), distribution (11.4%), services (10.44%) and mining (9.6%). Credit to the private sector was mainly used for recurrent expenditures (41.54%); inventory build-up (23.17%); and fixed capital investments (13.17%).

It is most unfortunate that compensation for pensioners whose contributions lost value due to the 2009 currency reforms is protracted due to the following reasons:

• Some pension funds and insurers have serious data gaps relating to the investigative period, making it difficult to compute compensation as per the provisions of Statutory Instrument 162 of 2023;
• All life companies are struggling to separate assets for shareholders and policyholders for the investigative period; and
• Substantial funding shortfalls for some pension funds as available assets cannot fully support the computed liabilities.

Yet compensation for value lost in subsequent currency reforms to date remains outstanding.

2.1.6   Budget Performance

During the first half of the year 2025, revenue collections amounted to US$3.68 billion against a target of US$3.28 billion, yielding a positive variance of US$405.2 million or 12.4%. Tax revenue accounted for US$3.52 billion or 96% of total revenue, against a target of US$3.13 billion. Non-Tax Revenue contributed the remaining 4% or US$161.1 million, against a target of US$150.4 million.

The breakdown in revenue sources indicate that value added tax contributed 25.3%, personal income tax (19.9%), excise duty (11.5%), corporate income tax (10.3%) and Intermediate Money Transfer Tax (7.1%). Reliance on personal income tax relative to corporate income tax suggests a regressive tax structure.

The 2025 mid-term budget and economic review indicated that 35% of the approved budget for the first six months had been spent, which is below the target. The performance varied across government ministries, departments and agencies (MAD) such that the burn rate of Transport and Infrastructural Development was at 116%, Office of the President and Cabinet at 81%, National Housing and Social Amenities at 64%, Parliament of Zimbabwe at 30%, Lands, Agriculture, Fisheries, Water and Rural Development at 44%, Ministry of Public Service, Labour and Social Welfare at 24%, Defence at 33%, Finance, Environment, Climate and Wildlife at 43%, Economic Development and Investment Promotion at 39%, Home Affairs and Cultural Heritage at 35%, Local Government and Public Works at 23%, Women Affairs, Community, Small and Medium Enterprises Development at 31%, Primary and Secondary Education at 31%, Higher & Tertiary Education, Science and Technology Development at 31%, Youth Empowerment, Development and Vocational Training at 28%, Audit office at 10% and Industry, Commerce at 15%, Energy and Power Development at 32%, Mines and Mining Development at 25%, Skills, Health and Child Care at 25%, Audit Development at 14%, Tourism and Hospitality Industry at 23%, Sports, Recreation, Arts and Culture at 18%, Veterans of the Liberations Struggle Affairs at 18%, Information Communication Technology and Courier Services at 16%, Foreign Affairs and International Trade at 14%,  among others.

In explaining the low utilisation of funds, the 2025 mid-term budget and economic review stated clearly that: “Overall budget disbursement was lagging behind actual cash support on account of cashflow constraints. In addition, for some MDAs budget execution has been low on account of implementation capacity constraints,” (paragraph 431:178). The budget statement concedes that this trend is at odds with a results-based framework, “Going into the second half of the year, Government will strengthen Results-Based Budgeting (PBB) through aligning programme funding with performance indicators and reinforce the use of results frameworks during budget formulation and implementation,” (paragraph 435:179).

Sadly, projections of annual commitments by development partners for 2025 have been reduced from US$800 million to US$500 million, a 37.5% decline largely on account of the general reduction of Official Development Assistance (ODA) amidst shifting geo-political interests. Since 2025 will mark the end of NDS1, this does not aqua well for the attainment of the lofty goals of the programme, and in particular the ascension to an Upper Middle-Income society by 2030.