Is there any country in the world that is going to do better in 2009 than in 2008, as measured by real GDP growth?

I think so. In fact, I think there’s a country that could have its strongest growth number in a decade, despite the global economic crisis. It’s called Zimbabwe.

Granted, the bar is set pretty low. As the recently released IMF Article IV report on Zimbabwe makes clear, it has been a devastating decade for the country. Real GDP fell a cumulative 40% between 2000 and 2007, and things got much worse in 2008, when the IMF estimates the economy – already close to half the size it was when Y2K was on everyone’s minds – plunged an additional 14%. The problems are familiar: farm seizures wrecked the large agricultural sector in the early part of the new century, the increasingly oppressive business environment kept investment away and hyperinflation held sway over the later years, culminating in the total abandonment of the Zimbabwe dollar in 2009. In that time, unemployment hit an estimated 80% and tax revenues dropped from 25% of GDP in 2005 to 4% in 2008.

So yes, BMI’s forecast for real GDP growth of 0.0% is a major improvement, even if it’s not technically growth yet. But for the first time in a long while, it’s possible to imagine things getting better in the country. In fact, BMI is cautiously saying the country will actually grow in 2010 by 3.0%, with even higher levels thereafter. The IMF is even more bullish, arguing for real GDP growth of 2.8% in 2009 (but then again, they tend to be optimists).

What’s changed? Well, for one, the new unity government has legalised the use of foreign currency and abandoned the Zimbabwe dollar (well, the ‘new’ Zimbabwe Dollar – or is it the ‘new new’ Zimbabwe Dollar?). That means hyperinflation is dead. Prices, as measured in US dollars, actually dropped 3% month-on-month in February, after inflation hit 79,600,000,000% month-on-month in November 2008, according to some estimates. That alone will be a major boost to the economy.

Second, some foreign bodies are stepping up to the plate to help out. The new unity government has asked the world for US$8bn to get the economy right again, and African countries and institutions have ponied up US$800mn in credit lines. That should help the government at least pay its employees’ wages for the year. Western donors are so far opting for a ‘wait-and-see’ attitude, but the IMF is returning to the country for the first time in a while to provide technical assistance.

The political situation is also showing some tentative green shoots. President Robert Mugabe and Prime Minister Morgan Tsvangirai – formerly bitter enemies – are reported to have a good working relationship. And the new president of South Africa, Jacob Zuma, is expected to toe a harder line towards the (previously) ruling ZANU-PF party, than Mbeki did, which could help keep the unity government viable. At any rate, members of the previous ruling class no longer seem as confident of their status as they once did. Exhibit A is this release from the Reserve Bank of Zimbabwe, entitled ‘The Reserve Bank Governor, Dr. G. Gono Breaks his Silence on Motor Vehicle Allocations to Parliamentarians and Other Issues Relating to Quasi-Fiscal Operations’ where the central bank governor defends his unusual monetary policy from various detractors.

Whereas foreign donors have previously hinted that they would provide no support to any government which included Mugabe, we believe there is a chance they will accept the resignation of Gideon Gono or some other signal of an honest willingness to reform as good enough to let at least some aid flow. If that were to occur, the best case scenario for Zimbabwe is probably modest growth in 2009 and 2010, as the economy begins to operate ‘normally’ in the absence of hyperinflation, followed by clean elections in late 2010 or early 2011 that usher in a genuine democratically elected government.

This could lead to a major inflow of foreign aid, as donors begin to believe Zimbabwe really has turned a new leaf, and the country could finally begin to recover in earnest. Former ruling officials in the ZANU-PF government might be tempted to support this route, since any other outcome would seem to risk a return to economic deterioration. With the local currency gone, key institutions – the military, for instance – would have to be paid in foreign exchange to maintain their support, and this will be increasingly difficult without foreign support.

That’s the rosy scenario. This is Zimbabwe though, and risks are paramount. The government could collapse at any moment, for a host of reasons. ZANU-PF officials are rumoured to be afraid they will be prosecuted for past crimes in any new democratically elected government, and if they decide amnesty for them is not going to happen, they could elect to abandon the pretence of a unity government (after all, they still control the security forces).

Or ZANU-PF might only be participating in the unity exercise in the hope that it will provide them with much needed foreign currency, in the form of donor funds. If they feel the West is not going to support the government, they might, again, abandon it. Or perhaps the West will support the government only to find the aid money is lost to corruption and patronage, propping up the government for years. Or perhaps the MDC faction of the unity government will pull out of the government, its only recourse if ZANU-PF continues to ignore its requests (one such request is the resignation of Gono). Or perhaps…

Still just green shoots then.