IMF Executive Board Concludes 2011 Article IV Consultation with Zimbabwe

Public Information Notice (PIN) No. 11/71
June 9, 2011

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 June 1, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.1


Stronger policies and a favorable external environment supported a nascent economic recovery during 2009–10. Real GDP growth accelerated from 6 percent in 2009 to 9 percent in 2010, and officially reported 12-month consumer price index (CPI) in U.S. dollar terms remained contained at 3 percent in December 2010. However, economic growth started from a low base and was concentrated on primary commodity sectors in mining and agriculture, both of which are sensitive to exogenous shocks. Structural impediments weighed heavily on manufacturing and utilities, which used to be the locomotives of growth and employment creation.

The humanitarian situation further improved in 2010. The burgeoning economic recovery, good harvest, donor off-budget support (9 percent of GDP), and increased provision of government services halted the deterioration of human development indicators.

Despite a favorable external environment, the external position remained precarious in 2010. Historically high commodity prices, the resumption in official diamond trade, a significant appreciation of the rand, and capital inflows eased somewhat balance of payments pressures in 2010. However, the current account deficit (23 percent of GDP in 2010) was large and financed in part by short-term capital flows, and the country’s usable international reserves amounted to 0.4 months of imports at end-2010. Zimbabwe is in debt distress with a large and unsustainable external debt stock (118 percent of GDP at end-2010), the bulk of which is in arrears (80 percent of GDP at end-2010).

After generating a small cash fiscal surplus in 2009, the central government had a cash deficit of about 0.4 percent of GDP in 2010. Commendable improvements in tax policy and administration have helped generate increases in fiscal revenues from 3 percent of GDP in 2008 to 29 percent in 2010. However, large employment costs (14.2 percent of GDP or 48 percent of revenues in 2010), the continued financing of weakly supervised state-owned enterprises and challenges in public financial management undermined the quality of expenditures and competitiveness.

The financial sector has grown significantly, but its vulnerabilities have recently increased. The multicurrency system helped jumpstart intermediation with the size of the banking system surpassing the prehyperinflation levels. With the appointment of a Reserve Bank of Zimbabwe (RBZ) governing board in May 2010, the RBZ has strengthened reporting and accounting and has completed staff downsizing. However, the RBZ has not published audited financial statements since 2008, its financial restructuring is at an early stage, and the status of nonperforming liabilities and severance packages remains unclear. Despite a notable strengthening of macroeconomic performance, vulnerabilities in the banking system have recently intensified, in part because of weak enforcement of prudential regulations.

Under the unchanged policies scenario, growth will most likely decelerate in 2011. An inefficient composition of expenditure, rising vulnerabilities in the financial system, and the recent announcement of the fast-track indigenization of the mining sector would be a drag on the recovery and cause growth to decelerate to 5.5 percent. Addressing these policy challenges in a timely manner could result in better growth outcomes for 2011. Key downside risks include possible political instability and a fall in commodity prices.

Executive Board Assessment

Executive Directors welcomed the continuation of Zimbabwe’s economic recovery and the improvement in humanitarian conditions. However, the recovery remains fragile and enormous challenges persist. Directors urged the authorities to take advantage of the favorable external environment and continued technical assistance to strengthen their macroeconomic framework, start rebuilding international reserves, and implement key structural reforms.

Directors concurred that the main fiscal challenge is to create space to tackle pressing social and infrastructure needs and to increase economic resilience to shocks. In the short term, it is important to return to cash budgeting and implement strong expenditure measures, including elimination of ghost workers, aimed at closing the likely financing gap. Over the medium term, generating fiscal surpluses would help raise international reserves and increase resilience to shocks. To meet these challenges, Directors highlighted the need for reducing the wage bill relative to revenues, tightening the budget constraint on state-owned enterprises, and implementing public finance management reforms.

Directors expressed concern about rising vulnerabilities in the banking system. Priorities are the restructuring of the financially distressed Reserve Bank of Zimbabwe (RBZ) to which banks are exposed, and strengthening of prudential regulations and their enforcement to contain liquidity, solvency, and credit risks. These steps will help mitigate financial sector vulnerabilities and ensure the medium-term viability of the multicurrency system. A number of Directors cautioned against using the SDR allocation for addressing the claims of downsized RBZ staff.

Directors underscored that improving the business climate is necessary for strengthening competitiveness and boosting growth potential. They emphasized the importance of aligning indigenization and empowerment objectives with respect for property rights. To attract private investment, Directors stressed the need to maintain the rule of law, ensure security of land tenure, improve governance, particularly in the diamond sector, and increase the flexibility of the labor market.

Directors noted that Zimbabwe is in debt distress. They welcomed the authorities’ strategy for arrears clearance and re-engagement with the international community. Directors urged the authorities to refrain from further nonconcessional borrowing and to seek better terms for recently contracted debt. Achieving external sustainability will also require a significant strengthening in policies and debt relief within a comprehensive arrears clearance framework. In this context, Directors welcomed the authorities’ commitment to make regular quarterly payments to the Poverty Reduction and Growth Trust (PRGT) and increasing payments over time as the country’s payment capacity increases.

Directors agreed that a Staff Monitored Program (SMP) would help establish a track record of sound policies. They encouraged the authorities to continue timely data reporting and to take concrete steps toward elimination of ghost workers which would demonstrate their capacity and commitment to implement an SMP. In light of recent policy challenges, clear progress on closing the fiscal financing gap for 2011 and addressing liquidity issues in the banking system would also be important to move toward an SMP. A few Directors considered that an early agreement on an SMP would support the authorities’ policy efforts.

Zimbabwe: Selected Economic Indicators, 2009–11


Estimated Projected


2009 2010 2011

Real GDP growth (annual percent change) 1/

6.0 9.0 5.5

Nominal GDP (US$ millions)

5,836 7,474 8,916

GDP deflator (annual percent change) 1/

24.7 17.5 13.1

Inflation (annual percent change)




 Consumer price inflation (annual average) 2/

6.5 3.0 4.8

 Consumer price inflation (end-of-period) 2/

-7.7 3.2 7.1

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




 Revenue and grants

16.7 29.4 29.2

 Expenditure and net lending

19.6 32.1 35.7

  Of which: cash expenditure and net lending

15.7 29.8 33.1

  Of which: employment costs

8.9 14.2 17.3

 Overall balance (including quasi-fiscal activity) 3/

-3.3 -2.9 -6.5

 Primary balance (including quasi-fiscal activity) 3/

0.1 -0.1 -4.1

 Cash balance

1.0 -0.4 -3.9

Money and credit (US$ millions) 4/




 Broad money (M3)

1,322 2,222 2,667

  Net foreign assets

-295 -151 -182

  Net domestic assets

1,618 2,374 2,849

 Domestic credit

649 1,577 1,992

  Of which: credit to the private sector

684 1,665 2,080

 Reserve money

125 256 251

 Velocity (M3)

4.4 3.4 3.3

External trade (US$ millions; annual percent change)




 Merchandise exports

-2.8 109.4 28.5

 Merchandise imports

22.2 60.6 14.0

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




 Merchandise exports 5/

1,616 3,382 4,346

 Merchandise imports 5/

-3,213 -5,162 -5,882

 Current account balance (excluding official transfers)

-1,426 -1,735 -1,203

  (percent of GDP)

-24.4 -23.2 -13.5

 Overall balance

96 -649 -516

Official reserves (end-of-period)




 Gross international reserves (US$ millions) 6/

437 453 442

 Usable international reserves (US$ millions) 7/

312 197 191

  (months of imports of goods and services)

1.0 0.4 0.3

Debt (end-of-period)




 Total external debt (US$ millions) 8/

7,595 8,823 9,624

  (percent of GDP)

130.1 118.0 107.9

 Total external arrears (US$ millions) 8/

5,289 5,950 6,452

  (percent of GDP)

90.6 79.6 72.4

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

1/ In constant 2009 prices. Discrepancies in estimates between IMF staff and the Zimbabwean authorities partly reflect differences in methodology in computing sectoral contributions to growth.

2/ For 2008, annual average January–September 2008, and end-of-period September 2008.

3/ Quasi-fiscal activity includes subsidies provided by the central bank to the public sector and producers/exporters.

4/ Zimbabwe dollar values converted into U.S. dollars at the UN exchange rate at end-2008.

5/ Structural break in trade data in 2010. Trade data based on information from exchange control data up to 2009 and customs data starting in 2010.

6/ Excluding encumbered deposits and securities.    

7/ Gross international reserves less amounts deposited in banks' current/RTGS accounts and statutory reserves.

8/ 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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