IMF Executive Board Concludes 2010 Article IV Consultation with Zimbabwe

Public Information Notice (PIN) No. 10/62
May 25, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 17, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.1


As a result of significant improvements in policies, real gross domestic product (GDP) is estimated to have grown by about 4 percent in 2009, following a contraction of about 14 percent in 2008. Strong growth was reported in manufacturing and services. The officially reported 12-month consumer price index (CPI) in U.S. dollar terms declined by about 8 percent in December 2009.

The humanitarian situation has improved. Most schools and hospitals have been re-opened. Owing to good rainfall and positive effects of better policies in 2009, food security improved. Incidence of cholera has declined. In 2009, donors provided significant off-budget financing for social services and humanitarian assistance (about US$540 million, or 12 percent of GDP) to help fill some of the gap left by severely constrained fiscal resources.

The government broadly adhered to cash budgeting in 2009. Budget revenue and grants increased from less than 4 percent of GDP during hyperinflation in 2008 to an estimated 22 percent of GDP (US$975 million) in 2009, mainly on account of indirect taxes. The improved revenue performance is attributable to the stabilization of prices and strong tax policy and administration measures (1.3 percent of GDP), which were largely implemented following IMF technical assistance advice. Budgetary cash expenditures––21 percent of GDP (US$920 million)—were skewed toward employment costs (53 percent of revenue), as the government transformed a uniform US$100 per month allowance into wages and implemented large differentiated wage and pension increases on July 1, 2009. As a result, capital expenditures only accounted for 1 percent of GDP and many social programs remained underfunded. The government has strengthened its public financial management system with World Bank assistance.

The multi-currency regime helped promote financial intermediation. Deposits with banks tripled between end-March and end-December 2009, and banks’ loan portfolios grew six-fold (although from a very low base). Strong credit growth supported the nascent economic recovery, but it also contributed to a widening current account deficit and rising vulnerabilities in the banking system.

Serious governance problems have remained at the Reserve Bank of Zimbabwe (RBZ). Accounting and internal controls are weak, and there was no approved budget for RBZ operations in 2009. The RBZ’s quasi-fiscal activities amounted to 0.5 percent of GDP, substantial resources were used for debt repayments to selected creditors, and its arrears on operating expenses increased significantly in 2009. However, the appointment of an RBZ Board on May 3, 2010 is a step toward resolving RBZ governance issues and refocusing its activities on its core functions under the multi-currency regime.

The external position remains precarious. Volatile short-term capital inflows and external payment arrears financed the current account deficit that is estimated to have widened to 30 percent of GDP in 2009, from 24 percent in 2008. Significant capacity constraints, in part related to a weak business climate, depressed export earnings in 2009, while rapidly increasing domestic credit and capital inflows, as well as higher humanitarian aid, financed increased import demand. The external debt continued to grow mainly as a consequence of new payment arrears and interest and penalty charges on existing payment arrears, but new private sector short-term borrowing also added to the external debt estimated at US$7.1 billion (162 percent of GDP) by end-2009.

The outlook for 2010 is highly uncertain. Large budgetary wage increases crowding out growth-oriented expenditures, a significant slowdown in private capital inflows because of increased uncertainties about the indigenization process, and strong credit growth have intensified external and banking system vulnerabilities. In the absence of timely corrective policy measures, economic growth would slow down significantly in 2010 and risks in the banking system would continue to rise.

Executive Board Assessment

Executive Directors welcomed the recent improvement in Zimbabwe’s macroeconomic performance and humanitarian conditions following a decade of economic decline and high inflation. To solidify these gains, as well as to reduce the significant external and financial vulnerabilities, it will be critical that the authorities undertake decisive policy measures.

Directors agreed that the main fiscal challenge is to create sufficient space for social and developmental expenditure. They strongly encouraged the authorities to return to cash budgeting, and reduce the wage bill and other low-priority expenditures. Directors welcomed the significant improvement in revenue performance and emphasized that additional revenue measures would be necessary. They also urged the authorities to refrain from further use of nonconcessional special drawing rights (SDR)-related funds for budget financing and to save Zimbabwe’s SDR holdings as part of the country’s international reserves.

Directors expressed concern about the increasing systemic vulnerabilities in the banking system. Addressing the governance weaknesses of the Reserve Bank of Zimbabwe is crucial for achieving banking system stability. In this regard, Directors welcomed the recent appointment of the RBZ governing Board, which should oversee a strengthening of RBZ governance and implementation of its downsizing and restructuring. Directors called for stepping up prudential supervision to contain credit and liquidity risks in the banking system and cautioned against moral suasion on banks to lend to specific sectors.

Directors considered that the multi-currency system would serve Zimbabwe well in the coming years. They agreed that the Zimbabwe dollar can be reintroduced as sole legal tender only after a track record of sound policies is established and a central bank governance framework with a focus on price stability is adopted.

Directors welcomed the authorities’ intentions to improve the business climate. They emphasized the importance of enforcing property rights and maintaining the rule of law, ensuring security of land tenure, and increasing the flexibility of the labor market, in particular with respect to wage levels. Sustained progress in these areas is essential for improving competitiveness, boosting private sector investment, and increasing growth potential.

Directors agreed that Zimbabwe is in debt distress. Sound policies and good governance will be critical to pave the way for eventual debt relief and access to donor financing. In this context, Directors strongly encouraged the authorities to improve their cooperation with the Fund on policies and payments. Most Directors supported the continuation of the Fund’s technical assistance in targeted areas. Many Directors were of the view that a Staff Monitored Program (SMP) could help establish a track record of sound policies. Some Directors, however, stressed that the authorities must demonstrate clear progress in economic policies and data reporting before an SMP could be considered.

Directors noted Zimbabwe’s significant deficiencies in the quality and timeliness of data reporting, which are in large part explained by capacity constraints. They underscored the need for rapidly improving macroeconomic statistics with Fund technical assistance.

Zimbabwe: Selected Economic Indicators, 2008–10







2008 2009   2010

Real GDP growth (annual percent change) 1/

-14.5 4.0



Nominal GDP (US$ millions)

3,929 4,397



GDP deflator (annual percent change) 1/

-1.3 7.6



Inflation (annual percent change)





Consumer price inflation (annual average) 2/

556 x 108 6.5   5.0

Central government (percent of GDP, measured in US$)





Revenue and grants

3.4 22.2



Expenditure and net lending

6.5 25.0



Of which: cash expenditure and net lending

3.1 20.9



Quasi-fiscal activity by RBZ

28.9 0.5



Overall balance (including quasi-fiscal activity)

-32.1 -3.3



Primary balance (including quasi-fiscal activity)

-28.5 0.1



Cash balance

0.3 1.2



Money and credit (US$ millions) 3/





Broad money (M3)

314 1,276



Net foreign assets

-314 -256



Net domestic assets

628 1,531



Domestic credit

140 602



Reserve money

7 125



Velocity (M3)

12.5 3.4



External trade (US$ millions; annual percent change)





Merchandise exports

-9.3 -0.5



Merchandise imports

24.4 22.9



Balance of payments (US$ millions; unless otherwise indicated)





Merchandise exports

1,633 1,625



Merchandise imports

-2,630 -3,232



Current account balance (excluding official transfers)

-945 -1,323



(percent of GDP)

-24.0 -30.1



Overall balance

-624 29



Official reserves 4/





Gross official reserves (US$ millions; end-of-period)

6 312



Gross official reserves (months of imports of goods and services)

0.0 1.0








Total external debt (US$ millions; end-of-period) 5/

5,794 7,145



(percent of GDP)

147.5 162.5



Total external arrears

3,781 4,575



(percent of GDP)

96.2 104.0



Sources: Zimbabwean authorities; IMF staff estimates and projections.
1/ In constant 2009 prices.
2/ For 2008, annual average January–September 2008.
3/ Zimbabwe dollar values converted into U.S. dollars at the UN exchange rate at the end of 2008.
4/ Gross official reserves as reported by the authorities are adjusted for encumbered deposits, securities, banks' Real Time Gross Settlement accounts, and required statutory reserves.

5/ Includes arrears and amounts for unidentified financing.

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. An explanation of any qualifiers used in summings up can be found here:


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