Public Information Notice: IMF Concludes 2004 Article IV Consultation with Zimbabwe

September 17, 2004

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2004 Article IV consultation with Zimbabwe is also available.

On July 7, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.1


Zimbabwe's social and economic conditions have continued to deteriorate, mainly reflecting inadequate economic policies and structural changes that weakened the economic base. In particular, the disorderly implementation of the land reform program has contributed to a sharp reduction in agricultural production. Concerns about governance, the rule of law and human rights, and the continued lack of clarity about property rights have severely damaged confidence, discouraged investment, and promoted capital flight and emigration, thus contributing to the economic decline. Unemployment is very high and increasing, social indicators have worsened, and the widespread HIV/AIDS pandemic remains largely unchecked. Severe food shortages have necessitated massive food imports and donor assistance.

Real GDP declined by 9.3 percent in 2003 and another broad-based decline is projected this year. Year-on-year inflation reached 600 percent during November 2003-February 2004. However, monthly inflation, which had reached 34 percent in November 2003, fell to 5 percent in April 2004 following a tightening of monetary policy and an appreciation of the exchange rate.

Monetary policy was loose and fueled high inflation in 2003, but it has been tightened in recent months, albeit not consistently. Broad money growth increased to 400 percent in December 2003, spearheaded by an expansion in private sector credit of above 520 percent. During the first two months of 2004, the Reserve Bank injected the equivalent of two-and-a-half  times the money stock at end-2003 through liquidity support to some banks and a concessional facility at a highly negative interest rate aiming to support "productive" sectors. Soon after, however, it began to mop up at high interest rates the excess liquidity that was created that way.

Fiscal operations were almost balanced in 2003, but the 2004 budget is expansionary, with a deficit target of 7.3 percent of GDP. Expenditure fell sharply in real terms in 2003 as wages were eroded by inflation, the domestic interest bill declined owing to negative real interest rates, and other government spending was constrained by shortages of foreign exchange and the weakening administrative capacity. The budget deficit rose to 13.4 percent of quarterly GDP in the first quarter of 2004, following a 220 percent wage increase in January and a catch up in current and capital spending.

The external current account deficit narrowed to 6.0 percent in 2003, from 7.3 percent in 2002. In the absence of foreign financing, arrears continued to accumulate to reach US$2.1 billion, or 44 percent of external debt. The average exchange rate in the economy strongly appreciated in early 2004. This resulted from the introduction of a heavily managed foreign exchange tender system in January and the clamping down on the parallel market, where the bulk of foreign exchange transactions took place in 2003. In April 2004, the average exchange rate was some 40 percent appreciated relative to the parallel exchange rate at end-2003. The tender rate depreciated somewhat in early May.

Progress has been limited on structural reforms. Most price controls were removed after May 2003 and the fuel market was partially liberalized. However, other reforms, including civil service reform and privatization, have stalled, and problems relating to the land reform program and property rights continued to affect adversely economic activity.

Zimbabwe has incurred overdue financial obligations to the Fund since February 2001. Arrears to the Fund totaled SDR 197 million as of end-April 2004.

Executive Board Assessment

They expressed grave concern over the continued sharp economic decline and high inflation in Zimbabwe, which are having dire consequences for the country's population―notably rising unemployment and the rapid deterioration of social indicators―that in the past were among the best in Africa. They regretted that a cycle of malnourishment and disease has developed, and that the sharp fall in agricultural production has led to continued food insecurity, while one in four adults is HIV-positive.

Directors saw the crisis as resulting mainly from inappropriate macroeconomic and structural policies, including weak financial management, distortionary controls and regulations, and the disorderly implementation of the fast-track land reform. External factors have compounded the effects of these policies. More broadly, Directors regretted that weak governance, corruption and the lack of respect for the rule of law have undermined confidence and led to capital flight and emigration, with negative spillover effects on neighboring countries.

Directors noted the government's efforts in 2003 to tighten the monetary stance. However, most Directors considered that the policies implemented to tackle the crisis have been inadequate and unsustainable. They strongly urged the authorities to adopt a comprehensive policy package aimed at halting the deterioration of the socio-economic situation, restoring confidence and donor support, and restarting growth on a sustainable basis.

Directors expressed concern about the expansionary budget for 2004 as well as the recent deterioration of the fiscal situation, and stressed that a decisive fiscal effort is needed urgently to help ease inflationary pressures. They advised the government to exercise strict control over the wage bill and non-essential spending and, at the same time, to do their utmost to protect social and infrastructure outlays and food imports if necessary. It will also be important to reduce quasi-fiscal activities, better target subsidies, and eliminate ad hoc tax exemptions in order to strengthen revenues.

Directors considered that reducing inflation should be the authorities' main priority and called for a sustained tightening of monetary policy. In this context, they stressed the urgent need to contain the growth of credit—in particular, credit at preferential, non-market interest rates—and to improve short-term liquidity management. Directors emphasized the importance of eliminating the current system of dual interest rates, which has led to serious distortions in the financial system, including disincentives to savings. They urged that market forces be permitted to determine interest rates and that concessional lending to selected borrowers be phased out.

Directors encouraged the authorities to step up their efforts to strengthen financial sector supervision, particularly with regard to provisioning and capital adequacy. They advised the Reserve Bank of Zimbabwe to prepare for the restructuring of weak and unsound banks, and to reduce systemic risks, including those associated with the concentration of lending among few firms. Directors considered that stronger supervision will be essential to help contain the effects of tighter financial policies and instill confidence in the domestic banking system.

Directors observed that the foreign exchange system continues to be affected by distortions caused by government intervention and burdensome surrender requirements. They called for a unification of the exchange rate to fully reflect market factors and improve external competitiveness, as well as for the removal of surrender requirements.

Directors encouraged the authorities to further liberalize the trade regime. They regretted that Zimbabwe maintains exchange restrictions on payments and transfers for current international transactions as well as multiple currency practices. They urged the authorities to establish a timetable for the removal of the restrictions and the elimination of the multiple currency practices.

Directors strongly recommended that the authorities address the impediments to improving food security, including by replacing the monopoly of the Grain Marketing Board with well-targeted basic food subsidies. They expressed concern over the food security outlook for the coming year and noted the government's decision in early May to abort the crop assessment prepared together with the World Food Program. They regretted that this decision leaves Zimbabwe without a basis for a timely appeal for food aid, with serious humanitarian consequences should the crop fall short of the government's ambitious estimates.

Directors regretted that there has been little progress in the area of structural reform. They emphasized that reforms focusing on increasing production and raising productivity and restoring respect for the rule of law remain critical for helping instill confidence and restarting economic growth. Directors recommended the removal of restrictive regulations to bring more activities into the formal economy, and the eventual privatization of public enterprises to reduce the fiscal burden and improve service delivery. They also advised the authorities to pursue anti-corruption efforts more vigorously by focusing closely on the roots of corruption, namely the numerous economic distortions that provided rent-seeking opportunities, rather than on its symptoms.

Directors urged the authorities to address in a transparent and orderly manner problems relating to land reform. They stressed that the clarification of tenure rights will be crucial for raising agricultural production and facilitating access to credit for farmers.

Directors took note of the authorities' request for resumption of technical assistance, which was suspended by the Executive Board in 2002. Staff will continue to provide policy advice to help the authorities formulate and implement a comprehensive and consistent package of measures in the context of the Article IV consultation discussions.

Directors stressed the need to address growing deficiencies in the statistical system that hampered the analysis of economic developments, policy formulation and implementation.

Directors also reviewed Zimbabwe's overdue obligations to the Fund. They considered the resumption of partial payments by Zimbabwe to the Fund in 2004 as a positive step, but regretted that this will be insufficient to stabilize arrears. They called on the authorities to take more decisive actions to improve cooperation with the Fund by adopting economic policies to address Zimbabwe's serious economic problems, and by significantly increasing payments to the Fund. They agreed to consider again the Managing Director's complaint regarding Zimbabwe's compulsory withdrawal from the Fund within six months.

Zimbabwe: Selected Economic Indicators, 2000-03






Real economy (percentage change)


Real GDP (market prices)





Consumer prices (end of period)






Government finances (percent of GDP)


Revenue, excluding grants





Expenditure and net lending





Overall balance, excluding grants and arrears





Primary balance, excluding grants






Money and interest rates


Broad money (M3, end of period; percentage change)





91-day treasury bills (annualized yield)






Balance of payments (billions of U.S. dollars; unless otherwise indicated)











Current account balance (excluding official transfers)





(In percent of GDP at the official exchange rate)1/





(In percent of GDP at world prices)2/





Overall balance






Usable reserves (millions of U.S. dollars; end of period)





(months of imports of goods and services)






Total external debt (percent of GDP at official exchange rate; end of period) 1/





Total external debt (percent of GDP at world prices; end of period)2/



Debt service (percent of exports of goods and services)





Sources: Zimbabwean authorities; and IMF staff estimates and projections.

1/ Foreign currency units are converted into Zimbabwe dollars at the official exchange rate.
2/ GDP at world prices using real GDP growth and trading partner countries' inflation (base year is 1996).

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of the Executive Board as expressed during the July 7, 2004 Executive Board discussion based on the staff report.


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