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IMF: Economic Difficulties Deepening in Zimbabwe

  • Gibbs Dube

FILE: IMF Zimbabwe country representative Christian Beddie and his colleage Domenico Fanizza (right). Photo by Irwin Chifera.

FILE: IMF Zimbabwe country representative Christian Beddie and his colleage Domenico Fanizza (right). Photo by Irwin Chifera.

The International Monetary Fund (IMF), which concluded consultations in Zimbabwe a few days ago, says the country’s economic difficulties have deepened.

In a statement Wednesday, IMF said, “Drought, erratic rains, and increasing temperatures, have reduced agricultural output and disrupted hydropower production and water supplies.

“Economic activity is severely constrained by tight liquidity conditions resulting from limited external inflows and lower commodity prices. Inflation remains in negative territory, because of the appreciating U.S. dollar - the country’s main currency- and lower commodity prices”.

It noted that Zimbabwe remains in debt distress and the level of international reserves is low. Despite the adverse environment, the IMF said the authorities have reduced the fiscal deficit in both 2014 and 2015.

“They have started to rationalize public expenditures by implementing recommendations from the 2015 civil service audit. They are also amending the Public Financial Management and Procurement Acts. The Reserve Bank of Zimbabwe has taken measures to restore confidence in the financial sector. All banks in operations now have capital buffers above the minimum requirements.

“Unless the country takes bold reforms, the economic difficulties will continue in medium-term. Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction.”

It further said the current account deficit is expected to narrow, but remain high over the medium term, financed mainly by loans to the private sector. “The authorities have met their commitments under the Staff Monitored Program (SMP) that ended at end-December 2015, despite economic and financial difficulties.

“The program focused on implementing a limited number of key reforms to show that the country has the capacity to implement the kind of reforms that would be required for a Fund-supported program.

“The SMP has been a useful anchor in a difficult macroeconomic and political environment. The authorities are pursuing a gradual, step-by-step approach to reengaging with the international community. Clearing arrears to the International Financial Institutions is seen as a first step in this process. The authorities presented a strategy to clear their external arrears to the IFIs and reforms plans going forward to creditors and development partners in October 2015.”

The IMF noted that the strategy and reform plans received broad support and, once implemented, should provide positive signals to investors and creditors, and help unlock external flows to finance the authorities’ development plans and private sector-led growth.

“Going forward, the authorities intend to reduce the size of the wage bill to re-orient spending towards priority capital and social outlays; improve debt management, develop a comprehensive public financial management strategy, and strengthen VAT policy and key processes in revenue administration; and improve the business environment, including by a transparent and consistent application of their indigenization policy and a new comprehensive land reform program. The latter would include a framework for land compensation.

“Risks to the already difficult outlook stem mainly from prolonged adverse weather conditions, and weak commodity prices and policy implementation in a difficult political environment. Timely implementation of measures to curb the wage bill and continued progress in State-Owned Enterprise (SOE) reforms would be needed to lower employments costs.”