The country, which ditched its worthless currency in 2009 in favour of the American dollar and thereby stabilised its once volatile economy, is grappling with a liquidity crunch that could throw it back into an economic crisis.
Analysts warn that because imports have grown faster than exports over the past three years the country's current account deficit has widened. With manufacturing not increasing, balance of payment support low and foreign investment down, the country finds itself unable to create its own liquidity.
"The manufacturing sector is now at best in a state of stagnation, with many companies in decline or closed," said Kumbirayi Katsande, president of the Confederation of Zimbabwe Industries (CZI), at the recent launch of his organisation's manufacturing sector survey.
He said local products had been replaced by cheap imports, draining the country of the little currency it earned from exports and consequently worsening the liquidity situation.
"Government [has to acknowledge] that the country is on a safe path to deindustrialisation," said Katsande.
The manufacturing sector has indicated that local industries have been hamstrung by a lack of capital from the domestic market, which is needed to fund desperately needed retooling to make local production processes more efficient.
Although capacity utilisation has improved from the depths of 10% reached in 2008 to 57.2% in 2011, the CZI manufacturing sector survey indicated capacity utilisation had plunged to 44.2% in 2012.
Dollars and deficits
Witness Chinyama, a group economist with AfrAsia Kingdom said: "The trade deficit has been the global cause of the liquidity crisis since dollarisation. We're now exposed because we are no longer able to print our own money."
He said lack of balance of payments support is also the missing link, but he blamed this on the country's international debt repayment arrears, which he said needed to be cleared to re-establish relations with the international community.
Zimbabwe needed its multicurrency regime to be underwritten by the international community, he said.
The current account deficit widened to 36% of gross domestic product in 2011, from 29% of GDP in 2010, according to the International Monetary Fund. However, the fund projects that the current account deficit will narrow to 20.5% of GDP in 2012, "as the 2011 import spike is reversed and exports continue to expand".
But Finance Minister Tendai Biti projects that the deficit will remain firm on the back of an increasingly negative trade balance, which amounted to $5.2-billion worth of imports between January and September 2012, against exports of $2.7-billion, representing a trade deficit of $2.5-billion.
"The high rate of consumption of imports against a sluggish growth of exports remains a challenge to the management of the current account and is not favourable for the recovery of the economy," said Biti.
He warned that the external position would "remain under pressure from a high import bill, as the rebound of exports will not match the steep rise in imports, leaving an anticipated current account deficit of 28.5% of GDP".
This will largely be financed by short-term capital inflows.
'A crisis which cannot be ignored'
Reserve Bank of Zimbabwe governor Gideon Gono – who presided over the hyperinflation of 2008 during which massive amounts of Zimbabwe dollars were printed – agreed that the economy faced "a crisis which cannot be ignored" owing to "persistent liquidity shortages in the economy".
Gono in the past has called for the return of the Zimbabwe dollar, and has said the current challenges in the economy were similar to those he had encountered while trying to avert liquidity-induced problems by printing money and embarking on quasi-fiscal activities to rebuild the agricultural sector and the economy.