The International Monetary Fund says Zimbabwe has redoubled its efforts to rebalance policies toward a stable macroeconomic environment conducive to private sector-led growth though economic conditions remain difficult.
In a statement Monday, the IMF said growth has slowed down because of inadequate financial flows, despite a very favorable agricultural season.
“This and the appreciation of the South African Rand, the major currency of Zimbabwe’s trading partner, has caused a liquidity crunch that has weakened economic activity. The external position remains precarious with low levels of international reserves, a large current account deficit, and external arrears.
“The authorities took decisive fiscal measures on the revenue and expenditure sides to keep fiscal policy on track and to protect social expenditures, despite the large civil service wage increase earlier in 2014. The authorities intend to re-engage with the international community.”
$10 BILLION DEBT
The IMF, which recently dispatched a team to Zimbabwe under the Staff Monitored Program (SMP), said the mission welcomes Zimbabwe’s decision to start working with the international financial institutions to prepare a plan for clearing the outstanding arrears, as a step toward resolving the country’s debt challenge.
Zimbabwe owes the IMF, local and international finance institutions almost $10 billion.
“The reform efforts have started to lay the ground for stronger, more inclusive, and lasting economic growth and addressing the economic challenges remains a priority for the government. It is encouraging that the authorities have come to the conclusion that Zimbabwe cannot address these challenges without the support of the international financial community.”
Zimbabwe’s policy reform agenda, which they will monitor with the help of IMF staff under a proposed new 15-month SMP to end December 2015, includes, among many other issues, balancing the primary fiscal budget.
According to the IMF, this will send a strong signal that Zimbabwe’s government intends to live within its means. “Moreover, fiscal policy will focus on raising the efficiency and quality of public spending and rebalancing the expenditure mix toward infrastructure and social outlays.”
CRIPPLING WAGE BILL
It said scarce public resources need to be used appropriately, underscoring the importance of containing pressures on the wage bill, stepping up reforms in the taxation of the mining sector, amending the Public Finance Management and Procurement Acts and approving the Public Debt Management Bill.
The IMF also noted that Zimbabwe needs to restore confidence and stability in the country’s financial sector.
It noted that the country needs to address its debt challenge by stepping up re-engagement with all creditors with the objective to normalize relations.
Apart from that, said the IMF, Zimbabwe needs to clarify the nation’s indigenisation and economic empowerment laws. “This will encourage mutually beneficial partnerships between domestic and foreign investors. This step will go a long way toward allaying negative perceptions on the security of investments and property rights, provide legal transparency and predictability, and reassure markets of the government’s open invitation to invest in Zimbabwe."
The IMF mission in Zimbabwe is expected to submit a detailed report to management. The IMF mission, which was led by Mr. Domenico Fanizza visited Harare from September 17 to conduct the third and last review under the SMP-approved by management in June 2013 and to hold discussions on a 15-month successor SMP.
The mission met with Finance Minister Patrick Chinamasa, Minister of Finance and Economic Development, Dr. Misheck Sibanda, Chief Secretary to the President’s and Cabinet, Dr. John Mangudya, Governor of the Reserve Bank of Zimbabwe (RBZ), other senior government officials, and representatives of the private sector, civil society and development partners.
It said Zimbabwe met all end-June 2014 quantitative targets and structural benchmarks under the program. The visit ends October 1st, 2014.
A SMP is an informal agreement between national authorities and IMF staff to monitor the implementation of the authorities' economic program.