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IMF: Zim's Unstable Economy Poses Risk to National Budget

International Monetary Fund (IMF) Managing Director Christine Lagarde.

The International Monetary Fund (IMF) says Zimbabwe’s economic environment remains difficult, posing significant risks to the budget and to financial stability.

In a statement, the Zimbabwe executive director for the IMF said policy efforts should continue to aim to restore fiscal and external sustainability and reduce financial vulnerabilities.

The director noted, following its recent consultation the country’s political and economic stakeholders, that the economic rebound experienced since 2009 has ended, with economic growth decelerating in 2013.

According to the IMF, the external position is vulnerable, with a wide current account deficit, an overvalued exchange rate, and low international reserves.

“The baseline scenario is marked by sluggish growth in 2014 and over the medium term, with risks clearly to the downside in the near term. Key risks to the outlook include lower than programmed tax collections, policy slippages, financial sector stress, and global commodity prices. Zimbabwe faces these risks with very thin buffers.”

Staff-Monitored Program

The IMF said the Staff-Monitored Program provided a useful anchor for Zimbabwe in an election year.

“However, progress in implementing the program was complicated by a long electoral process and a protracted post-election transition, as well as an adverse external environment. Thus, a number of quantitative targets and structural benchmarks were not met. Discussions on the first and second reviews are at an advanced stage.”

Medium-Term Challenges

The IMF further said Zimbabwe faces serious medium-term challenges, and a vigorous reform program is needed to put the country on a sustainable, inclusive growth path.

It said a fiscal strategy aimed at rebalancing the expenditure mix should be a priority, including the prevention of the accumulation of domestic arrears. “Significant financing is needed to address the infrastructure deficit and widespread poverty, as targeted under the government’s own development plans.”

To attract much needed foreign direct investment and access affordable financing, said the IMF, the authorities need to improve the business environment.

External Debt

It said Zimbabwe’s debt situation remains a serious impediment to external sustainability and economic development.

“Addressing this issue will require a comprehensive arrears clearance framework underpinned by strong macro policies, in what will likely be a protracted process.”

Zimbabwe owes the IMF, World Bank and other international organizations millions of dollars owing to some years of stagnant growth.

The country’s current external and domestic debt stands at $9.9 billion.