## 1. Implementation of IMF Policy Advice

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### Background and key structural issues
- Zimbabwe transitioned from one of the most advanced economies in sub-Saharan Africa to one of its most vulnerable; some pillars of its strong foundation remain.
- Since the late 1990s land reform:
  - agricultural production plummeted and productivity declined;
  - excessive fiscal deficits led to external payment arrears and emigration of skilled workers.
- 2008–09 hyperinflation prompted abandonment of the Zimbabwean dollar and adoption of a multi-currency system in early 2009 (U.S. dollar, rand, and other currencies), with the U.S. dollar dominating in the mid-2010s.
- Multi-currency regime effects and weaknesses:
  - anchored prices but left net external and fiscal positions negative;
  - Reserve Bank of Zimbabwe (RBZ) not adequately capitalized;
  - financial sector weak and liquid assets scarce;
  - insufficient policy adjustment, structural rigidities, and exogenous shocks produced overvaluation of the real exchange rate, high current account deficits, nearly depleted reserves, and introduction of three quasi-currency instruments: small denomination currency notes, electronic balances, and T-bills.

### Recent developments and implementation of Fund advice
- Reform agenda supported by two successive IMF staff monitored programs but constrained by political circumstances and delayed implementation.
- Fiscal policy advice:
  - recommended targeting a broadly balanced fiscal position and measures to achieve fiscal discipline (reducing employment costs, improving tax administration, accelerating SOE reforms).
  - advice to target a broadly balanced fiscal position "was missed by a large margin" due to expenditure overruns only partly explained by exogenous shocks.
- Financial soundness:
  - swelling fiscal deficit undermined Fund advice on strengthening bank risk management;
  - issuance of large amounts of public debt reduced credit availability to the private sector and reversed progress in strengthening confidence;
  - Fund advice on resolution of non-performing loans (NPLs) was carried out but implementation resulted in higher debt than anticipated.
- Structural reforms:
  - progress: clarifying indigenization policy; improving use of land leases to support lending; establishing a one-stop shop for investors.
  - shortfall: reform program not fully implemented; perception persists that much progress is needed to tackle corruption and improve business climate.

### Fiscal challenges and recent fiscal dynamics
- 2016 highlights:
  - Annual revenues fell by 6 percent in nominal terms amid weak activity.
  - Government spending increased, causing liquidity shortages.
  - Payment of an unbudgeted 13th month salary raised employment costs (including pensions and the portion of transfers relating to salaries) to over 90 percent of total revenues.
  - Overall deficit reached 9 percent of GDP.
  - About 4 percent of GDP was spent on agricultural support (authorities classify as capital spending though bulk may be transfers).
  - Domestic debt at end-2016 was almost 25 percent of GDP (14 percent in 2015).
- Financing dynamics:
  - Financing needs exceeded private sector T-bill absorption capacity; government used an overdraft from the RBZ.
  - Overdraft legally limited to 20 percent of previous year’s revenue, exceeded 25 percent in 2016 and reached a level equivalent to 7 percent of GDP.
- Descriptive finding (Figure 2):
  - increasing wage bill and declining revenues worsened fiscal position and increased government financing needs, met by RBZ overdraft and increased T-Bill issuance, raising domestic debt.

### External sector, social impact, and reserves
- Exogenous aggravating factors:
  - depressed key export prices, falling FDI, and rand-based remittances declining in U.S. dollar terms;
  - withdrawal of correspondent banking relationships increased transaction costs and jeopardized foreign payments;
  - El-Niño drought produced lowest maize harvest in 25 years, worsening food insecurity.
- Social indicators:
  - number of Zimbabweans in extreme poverty increased by 200,000 to 2.8 million in 2016 (World Bank).
- Reserves:
  - international reserves cover only two weeks of imports.
- Economic activity:
  - administrative measures reduced the pace of economic transactions; real GDP growth estimated at 0.7 percent in 2016 (GDP series revised upwards in early 2017 as national accounts coverage was expanded).

### Reengagement with the international community
- Lima process (2015) envisaged simultaneous repayment modalities: clearing IMF arrears using SDR holdings; IBRD cleared with a bridge loan from a bilateral creditor; IDA drawing on a turnaround facility; AfDB with AfDB Pillar II Trust Fund.
- Payment to the PRGT:
  - Zimbabwe fully settled overdue obligations to the IMF’s PRGT in October 2016.
  - IMF Executive Board lifted remedial measures in November 2016, but access to IMF resources requires a credible plan to: (i) resolve arrears with official creditors and engage with external private creditors (if any); and (ii) implement strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability and foster private sector development.
- Clearing World Bank arrears:
  - authorities view market resources as the only alternative in absence of official support; willing to collateralize gold proceeds to settle obligations.
  - concerns: sustainability of relying on market resources and collateralizing gold proceeds could complicate future debt relief.
- Outlook:
  - expected bilateral loan to clear World Bank arrears did not materialize; authorities sought commercial lenders.
  - inadequate progress on reforms undermining prospects for new external financing; in absence of debt relief, Zimbabwe is in debt distress.

### Managing dollar shortages and quasi-currency emergence
- RBZ financing of the budget deficit and delayed fiscal adjustment prompted quasi-currency instruments:
  - RBZ overdraft in a dollarized economy created money by crediting bank accounts via the RTGS electronic system, increasing deposits without increasing U.S. dollar cash or external (nostro) accounts.
  - Government issued T-bills mainly acquired by commercial banks and used as payment for services.
  - In November 2016, RBZ started issuing $2 and $5 denominated “bond notes” at parity with the U.S. dollar—nominally in form of incentives of up to 5 percent of exports deposited in exporters’ accounts.
- Administrative measures from May 2016 onward:
  - allocation of foreign exchange based on import priorities; import limits and controls (Statutory Instrument 64);
  - total or partial export repatriation introduced, effectively exchanging U.S. dollars for RTGS electronic balances;
  - encouragement of card use and imposition of deposit withdrawal ceilings (in some cases as low as $20 per day); withdrawals mainly occurring in bond notes.
  - by end-May, around $140 million (20 percent of currency in circulation), out of a planned $200 million had been issued.
  - lending rate ceilings imposed to cap cost of credit.
- Foreign exchange allocation and controls:
  - May 2016 RBZ foreign exchange priority list directed allocations to certain import-substitution industries, exporters, and strategic imports.
  - implementation gives rise to an exchange restriction subject to Fund approval under Article VIII, Section 2(a).
- Parallel market and discounts:
  - bond notes trading at a 5 to 7 percent discount vis-à-vis the U.S. dollar; electronic balances reportedly exchange at a 15 to 20 percent discount.
  - trade controls and discounts led to an uptick in inflation: quarterly annualized rate of 3.4 percent in March 2017 (compared to 0.7 percent in December 2016).
- Cash scarcity:
  - U.S. dollars in circulation estimated at around $600–800 million.
  - bond notes issuance by end-May around $140 million (20 percent of currency in circulation), planned issuance $200 million.

### Analysis: interactions between fiscal policy, financial sector, and external viability
- Large domestically-financed fiscal deficit crowded out private sector credit and strained financial sector soundness.
- RBZ overdraft in a nominally dollarized economy created liquidity not matched by U.S. dollar cash or external balances, contributing to quasi-currency creation and parallel market dynamics.
- Issuance of large amounts of public debt reduced credit availability to private sector and reversed confidence gains.
- Exchange and capital controls, foreign exchange allocation mechanisms, and introduction of bond notes and RTGS balances created distortions that:
  - increased transaction costs;
  - incentivized dollar hoarding outside formal banking system;
  - encouraged informal trade and parallel market activity.
- Reengagement with creditors depends on credible fiscal adjustment, structural reforms, and assurances on financing; failure of expected official financing complicated arrears clearance plans and contributed to debt distress.

---

### Economic outlook for 2017
- Real GDP growth projections:
  - staff: "2.5–3.0 percent in 2017".
  - authorities: "3.7 percent".
- Drivers supporting 2017 rebound:
  - strong harvest after the 2015–16 drought (good rainfall season);
  - favorable prospects for gold, chrome and tobacco exports;
  - lower demand for imported food.
- Constraints:
  - insufficient liquidity will continue to hamper imports and affordable financing;
  - inflation and inflation expectations to rise with money creation and increasing import prices due to controls.
- Inflation projections:
  - annual average inflation set to be "2–3 percent", implying an increase to "about 7 percent by year-end".
- Current account:
  - external current account deficit projected to narrow to "about 3¾ percent of GDP" (from an average of "13¼ percent in 2012–15").

### Medium-term scenarios and baseline indicators
- Scenario A (Optimal):
  - requires reform and reengagement, strong efforts by authorities, and reciprocal international support.
  - upside potential given adequate physical infrastructure, high human capital, and underutilized capacity in agriculture, mining, and industry.
- Scenario B (Downside):
  - inability to restrain fiscal spending or additional shocks could lead to rapidly rising inflation, growing shortages, larger discounts on quasi-currencies, financial sector distress, and social tensions.
- Baseline scenario:
  - delayed fiscal consolidation with partial expenditure restraint; persistent higher-than-optimal fiscal deficits; some monetary financing continues.
  - consequences: rise in inflation affecting real wages; overappreciated real exchange rate; scarcity of U.S. dollars or availability only at a premium; intensified administrative controls; deteriorating macro-financial and external imbalances; growth stagnation over medium term.
- Selected baseline indicators (Prel. 2016; Projections 2017–22):
  - Real GDP growth (annual percentage change): Prel. 2016: "0.7"; 2017: "2.8"; 2018: "0.8"; 2019: "0.3"; 2020: "-0.3"; 2021: "-0.7"; 2022: "-0.9".
  - Nominal GDP (US$ millions): Prel. 2016: "16,124"; 2017: "17,105"; 2018: "18,904"; 2019: "20,601"; 2020: "21,434"; 2021: "22,218"; 2022: "22,877".
  - Consumer price inflation (annual average): Prel. 2016: "-1.6"; 2017: "2.5"; 2018: "9.5"; 2019: "8.3"; 2020–2022: "4.0".
  - Central government revenue and grants (percent of GDP): Prel. 2016: "21.7"; 2017: "21.7"; 2018: "21.1"; 2019: "20.9"; 2020: "20.7"; 2021: "20.6"; 2022: "20.5".
  - Expenditure and net lending (percent of GDP): Prel. 2016: "30.8"; 2017: "28.0"; 2018: "25.4"; 2019–2022: "25.0"/"24.7" series.
  - Overall balance (cash basis; percent of GDP): Prel. 2016: "-8.8"; 2017: "-5.9"; 2018: "-4.3"; 2019–2021: "-4.1"; 2022: "-4.0".
  - Financing (percent of GDP): Prel. 2016: "5.9"; 2017: "4.3"; 2018: "4.1"; 2019–2021: "4.1"/"4.0".
  - Of which RBZ overdraft (percent of GDP): Prel. 2016: "1.2"; 2017: "1.6"; 2018: "0.5"; 2019: "0.5"; 2020: "0.5"; 2021: "0.4".
  - Current account balance (excluding official transfers; US$ millions): Prel. 2016: "-662"; 2017: "-617"; 2018: "-159"; 2019: "-79"; 2020: "-211"; 2021: "-370"; 2022: "-439".
  - Gross international reserves (months of imports of G&S): Prel. 2016: "0.6"; 2017: "0.4"; 2018: "0.4"; 2019: "0.4"; 2020–2022: "0.3".
  - Domestic debt (percent of GDP): Prel. 2016: "24.8"; 2017: "28.2"; 2018: "30.1"; 2019: "32.0"; 2020: "34.9"; 2021: "37.7"; 2022: "40.6".
  - External debt (percent of GDP): Prel. 2016: "44.8"; 2017: "42.4"; 2018: "38.3"; 2019: "35.0"; 2020: "33.5"; 2021: "32.2"; 2022: "31.3".

### Policy discussions and recommendations
- Overarching objective:
  - strong fiscal and structural reforms to restore domestic and external equilibria and unlock Zimbabwe’s potential (supporting Scenario A).
- Fiscal consolidation (urgent and critical):
  - persistent large deficits crowd out private investment, exacerbate external imbalance, and undermine currency confidence;
  - failure to curtail monetary deficit financing could rapidly escalate the price level.
- 2017 budget developments:
  - 2017 budget target of an overall deficit of "around 2 1/3 percent of GDP" proved overly optimistic.
  - expected deficit around "6 percent of GDP" due to reversed revenue measures, inability to implement expenditure cuts, and expanded agricultural support programs.
  - financing plans included issuance of a bond by the social security agency and potential loan from commercial lenders at market terms.
- Command Agriculture program (Box 3):
  - government borrowed domestically to support maize and other production after importing "$250 million worth of maize" following the 2015/16 drought.
  - government buy price for GMB set at "$390 per ton of maize", more than double the current world price.
  - cost of command programs for maize and wheat likely to be "in the range of 2 to 3 percent of GDP by the end of 2017".
  - staff recommendation: redesign agricultural interventions to limit fiscal risks and realize savings of "around 1–2 percent of GDP lower per year", and promote private sector participation where feasible.
- Wages and public employment:
  - public sector wage bill around "19 percent of GDP" viewed as unsustainable.
  - staff suggested measures: suspend 13th salary ("1 percent of GDP"); downsizing civil service and eliminating ghost workers; compress remuneration while protecting social priorities ("1 to 2 percent of GDP").
- Revenue measures:
  - staff recommended phasing out income tax and capital gains exemptions; restrict VAT exemptions to critical low-income items; reduce administration gaps in transit, export controls and excise taxes; improve fiscal governance in mining.
  - staff estimates administrative and policy measures together with broader reforms could raise revenue-to-GDP ratio "3 percentage points higher than in the baseline scenario over the medium-term".
- Efficiency savings:
  - potential savings from reducing foreign travel expenses, nonessential procurement, and provision of government vehicles.
- Macro-financial linkages and exchange rate:
  - refrain from further monetary financing of the deficit and contain domestic debt; RBZ’s ability to honor bank obligations depends on government moving to fiscal surpluses and/or obtaining significant external financing.
- Banking sector vulnerabilities:
  - upcoming asset valuation reforms could create recapitalization needs for several banks.
  - since 2014, "50 correspondent relationships with banks based in Zimbabwe were lost".
  - staff encouraged restoring banking relations and argued against interest rate caps.

### Non-performing loans (NPLs) and ZAMCO
- ZAMCO’s purchases reduced banks’ NPLs but fiscal cost higher than expected:
  - assumed portfolio twice the amount initially intended;
  - ZAMCO doubled purchased NPLs to over $800 million (5 percent of GDP);
  - ZAMCO expects to recoup about 60–65 percent of its NPL holdings; recovery slower than anticipated.
- With fiscal position in deficit, ZAMCO’s NPL assumption implies government bearing cost of socializing private losses through additional borrowing.
- Staff urged authorities to work with banks on contingency planning and bolster AML/CFT framework to reduce pressure on correspondent banking relationships.

### Structural constraints to private sector development and SOEs
- Constraints deterring businesses:
  - uncertain policy environment; relatively heavy tax burden; economic imbalances; high perceived corruption.
- Land and agriculture:
  - agricultural land owned by state; lack of market-based mechanisms for bankable land leases affecting investment and credit access.
- SOEs:
  - cover key areas (airline, electricity, water, railways, mining); inefficient and drain on budget.
  - authorities drafted National Code of Corporate Governance Bill with World Bank assistance; SOEs largely overseen by line ministries and political obstacles hamper central control.
- Legislative and institutional reforms:
  - some bills approved by cabinet and with first readings in parliament include Movable Property Security Interest Bill, Insolvency Bill, Estate Administrators Act Amendment Bill, Ease of Settling Commercial and Other Disputes Bill, and A Deeds Act Amendment Bill.

### Public financial management (PFM)
- Improvements needed to promote budget credibility and effectiveness:
  - align budgetary processes with fiscal objectives and resources;
  - ZIMASSET investment expenditure is well under one-tenth of levels foreseen due to current outlays crowding out investment;
  - new procurement legal framework introduced with independent regulatory authority and possible sanctions for offending procurement officers and service providers;
  - staff supported efforts to improve comprehensiveness of fiscal reporting and auditing.

### Staff appraisal — macroeconomic stabilization and policy priorities
- Immediate and commensurate response required given severe challenges and international isolation.
- Key policy priorities and assessments:
  - fiscal consolidation is urgent and inescapable; public sector employment costs central to current difficulties and need addressing while mitigating social consequences;
  - achieving sustainable fiscal stance is sine qua non for stabilizing monetary regime and restoring confidence;
  - refrain from monetary financing of the deficit, contain issuance of T-bills to prevent accelerating discounts, and avoid borrowing by collateralizing future export proceeds;
  - financial sector supervision should be proactive; bolstering AML/CFT framework critical;
  - staff does not recommend Executive Board approval of retention of exchange restriction measures described in paragraph 11 since there is no clear plan and timetable for their elimination.
- Authorities encouraged to fully implement structural reform agenda: contain wages, establish one-stop shop for investors, create Special Economic Zones, ease doing-business constraints, and combat corruption.

### Risks and upside opportunities
- Downside risks:
  - clear and immediate (fiscal slippage, external financing drying up, higher inflation, financial sector stress).
- Upside opportunities:
  - strong endowment of natural resources and human capital; resilience of informal sector;
  - strong reform agenda, including human rights and property issues, could pave way for reengagement and unlock financing, investment, and debt relief.

### Annex II — Climate Change: Risks and Policy Options (summary)
- Recent climate shocks:
  - 2015/16 El-Niño induced drought and heavy rains of early‑2017 exposed vulnerabilities.
  - agriculture (employer of nearly 70 percent of population) hit by drought; lowest maize harvest in 25 years.
  - floods of early‑2017 damaged crops/infrastructure, prompted armyworm infestations, and outbreaks of typhoid and malaria.
  - hydro-generation disruption reduced electricity supply, impacting industry.
- Longer-term risks:
  - global warming by 1.5°–2°C could lead to a 40–80 percent reduction in present maize, millet, and sorghum cropping areas in Africa (World Bank 2013).
  - hydroelectric generation (about 40 percent of electricity needs) could drop drastically.
  - physical infrastructure and water storage affected by lack of maintenance and silting.
- Policy options:
  - risk reduction: diversify away from agriculture, invest in irrigation and water infrastructure, focus on resilient crops, restore access to financing, implement financial inclusion, develop targeted social safety nets and primary healthcare.
  - risk transfer: increase household access to cost-effective financial instruments; reengage with international community to become eligible for quicker disaster relief and resources.
- Fiscal constraints:
  - rebalance expenditure profile to create room for infrastructure and healthcare; raise revenues (including potential carbon tax); restore access to credit; accelerate reengagement.

*Source: IMF staff report (content unit: 1. Implementation of IMF Policy Advice, cr17196).*

### 1. Implementation of IMF Policy Advice ___________________________________________________________ 6

### 1. Implementation of IMF Policy Advice

### Background and key structural issues
- Zimbabwe was once among the most advanced economies in sub-Saharan Africa but has become one of its most vulnerable; some pillars of its strong foundation remain.
- Since the late 1990s land reform, agricultural production plummeted and productivity declined; excessive fiscal deficits led to external payment arrears and emigration of skilled workers.
- The 2008–09 hyperinflation led to abandonment of the Zimbabwean dollar and a move to a multi-currency system in early 2009 (U.S. dollar, rand, and other currencies), with the U.S. dollar coming to dominate in the mid-2010s.
- The multi-currency regime anchored prices but was imperfect: net external and fiscal positions were negative, the Reserve Bank of Zimbabwe (RBZ) was not adequately capitalized, the financial sector was weak, and liquid assets were scarce.
- Insufficient policy adjustment, structural rigidities, and exogenous shocks produced an overvaluation of the real exchange rate, loss of competitiveness, high current account deficits, nearly depleted reserves, and introduction of three quasi-currency instruments: small denomination currency notes, electronic balances, and T-bills.

### Recent developments and implementation of Fund advice (Box 1)
- Reform agenda supported by two successive IMF staff monitored programs aimed to address imbalances but was constrained by political circumstances and delayed implementation.
- Fiscal policy:
  - Fund advice recommended targeting a broadly balanced fiscal position and measures to achieve fiscal discipline (reducing employment costs, improving tax administration, accelerating SOE reforms).
  - The advice to target a broadly balanced fiscal position "was missed by a large margin" due to expenditure overruns only partly explained by exogenous shocks.
- Financial soundness:
  - Swelling fiscal deficit undermined Fund advice on financial sector soundness (strengthening bank risk management).
  - Issuance of large amounts of public debt reduced availability of credit to the private sector and reversed progress in strengthening confidence.
  - Fund advice on resolution of non-performing loans (NPLs) was carried out but implementation resulted in higher debt than anticipated.
- Structural reforms:
  - Progress: clarifying the indigenization policy; improving use of land leases to support lending; establishing a one-stop shop for investors.
  - Shortfall: reform program not fully implemented; perception persists that much progress is needed to tackle corruption and improve the business climate.

### Fiscal challenges and recent fiscal dynamics
- 2016 highlights:
  - Annual revenues fell by 6 percent in nominal terms amid weak activity.
  - Government spending increased, causing liquidity shortages.
  - Payment of an unbudgeted 13th month salary raised employment costs (including pensions and the portion of transfers relating to salaries) to over 90 percent of total revenues.
  - Overall deficit reached 9 percent of GDP.
  - About 4 percent of GDP was spent on agricultural support (authorities classify as capital spending though bulk may be transfers).
  - Domestic debt at end-2016 was almost 25 percent of GDP (14 percent in 2015).
- Financing dynamics:
  - As financing needs exceeded private sector T-bill absorption capacity, the government used an overdraft from the RBZ, exerting additional pressure on the balance of payments.
  - The overdraft, legally limited to 20 percent of the previous year’s revenue, exceeded 25 percent in 2016 and reached a level equivalent to 7 percent of GDP, notwithstanding the dollarized economy.
- Figure 2 (descriptive findings):
  - Increasing wage bill and declining revenues contributed to worsening fiscal position and increasing government financing needs.
  - Financing needs were met by an overdraft from the RBZ and increased issuance of T-Bills, resulting in higher domestic debt.

### External sector, social impact, and reserves
- Exogenous factors worsening conditions:
  - Depressed key export prices, falling FDI, and rand-based remittances declining in U.S. dollar terms weakened the external position.
  - Withdrawal of correspondent banking relationships increased firms’ transaction costs and jeopardized foreign payments.
  - El-Niño induced drought resulted in the lowest maize harvest in 25 years, contributing to worsening food insecurity and social indicators.
  - The number of Zimbabweans in extreme poverty increased by 200,000 to 2.8 million in 2016 (World Bank).
- Reserves:
  - International reserves cover only two weeks of imports.
- Economic activity:
  - Administrative measures reduced the pace of economic transactions; real GDP growth is estimated at 0.7 percent in 2016 (GDP series revised upwards in early 2017 as national accounts coverage was expanded).

### Reengagement with the international community (Box 2)
- Lima process (2015) envisaged simultaneous repayment modalities: clearing IMF arrears using SDR holdings; IBRD cleared with a bridge loan from a bilateral creditor; IDA drawing on a turnaround facility; AfDB with the AfDB Pillar II Trust Fund.
- Payment to the PRGT:
  - After bilateral loan to clear World Bank arrears and IDA turnaround facility failed to materialize, Zimbabwe proposed a sequential approach.
  - Zimbabwe fully settled overdue obligations to the IMF’s PRGT in October 2016.
  - IMF Executive Board lifted remedial measures in November 2016, but access to IMF resources requires a credible plan to: (i) resolve arrears with official creditors and engage with external private creditors (if any); and (ii) implement strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability and foster private sector development.
- Clearing World Bank arrears:
  - Authorities view market resources as the only alternative to clear World Bank arrears in absence of official support; willing to collateralize gold proceeds to settle obligations and pave way for regularization with other creditors.
  - Concerns exist over sustainability of relying on market resources and collateralizing gold proceeds could complicate future debt relief.
- Outlook:
  - Expected bilateral loan to clear World Bank arrears did not materialize, prompting authorities to seek commercial lenders.
  - Inadequate progress on reforms is undermining prospects for new external financing; insufficient assurances of new financing weaken incentives for reform.
  - In absence of debt relief, Zimbabwe is in debt distress (see accompanying Debt Sustainability Analysis).

### Managing dollar shortages and quasi-currency emergence
- RBZ financing of the budget deficit and delayed fiscal adjustment prompted use of quasi-currency instruments.
  - RBZ overdraft in a dollarized economy created money by crediting bank accounts via the RTGS electronic system, increasing deposits without increasing U.S. dollar cash or external (nostro) accounts.
  - Government issued T-bills mainly acquired by commercial banks and used as payment for services.
  - In November 2016, RBZ started issuing $2 and $5 denominated “bond notes” at parity with the U.S. dollar—nominally in form of incentives of up to 5 percent of exports deposited in exporters’ accounts.
- Administrative measures to curb imports and deposit withdrawals (May 2016 onward):
  - Allocation of foreign exchange on basis of import priorities; new limits and controls on imports (Statutory Instrument 64).
  - Total or partial export repatriation introduced, effectively exchanging U.S. dollars for RTGS electronic balances.
  - Encouragement of credit/debit card use and imposition of deposit withdrawal ceilings, gradually lowered and now left to banks’ discretion (in some cases as low as $20 per day); withdrawals mainly occurring in bond notes.
  - By end-May, around $140 million (20 percent of currency in circulation), out of a planned $200 million had been issued.
  - Lending rate ceilings imposed to cap cost of credit.
- Foreign exchange allocation:
  - May 2016 RBZ foreign exchange priority list directed allocation by commercial banks to certain import-substitution industries, exporters, and strategic imports.
  - Market participants not on the priority list face significant challenges and long waiting times to access foreign exchange for current international transactions; private sector external payment arrears have emerged.
  - Implementation of the priority list gives rise to an exchange restriction subject to Fund approval under Article VIII, Section 2(a).
- Parallel market and discounts:
  - Use of bond notes and RTGS electronic balances at official par amid capital flow controls gave rise to a parallel market.
  - Bond notes trading at a 5 to 7 percent discount vis-à-vis the U.S. dollar; electronic balances reportedly exchange at a 15 to 20 percent discount.
  - Trade controls and discounts led to an uptick in inflation: quarterly annualized rate of 3.4 percent in March 2017 (compared to 0.7 percent in December 2016).
- Cash scarcity:
  - While no official survey undertaken, U.S. dollars in circulation estimated at around $600–800 million.
  - Bond notes issuance by end-May around $140 million (20 percent of currency in circulation), planned issuance $200 million.

### Analysis: interactions between fiscal policy, financial sector, and external viability
- Large domestically-financed fiscal deficit crowded out private sector credit and strained financial sector soundness.
- RBZ overdraft in a nominally dollarized economy created liquidity that was not matched by U.S. dollar cash or external balances, contributing to quasi-currency creation and parallel market dynamics.
- Issuance of large amounts of public debt reduced credit availability to private sector and reversed confidence gains.
- Exchange and capital controls, foreign exchange allocation mechanisms, and introduction of bond notes and RTGS balances created distortions that increased transaction costs, incentivized dollar hoarding outside the formal banking system, and encouraged informal trade and parallel market activity.
- Reengagement with creditors depends on credible fiscal adjustment, structural reforms, and assurances on financing; the failure of expected official financing to materialize has complicated arrears clearance plans and contributed to debt distress.

*Source: IMF staff report (content unit: 1. Implementation of IMF Policy Advice).*

### 13.      Aided by the rebound in agriculture, growth is expected to pick up in 2017 in an

### 13.      Aided by the rebound in agriculture, growth is expected to pick up in 2017 in an

### Economic outlook for 2017
- Real GDP growth projected by staff: "2.5–3.0 percent in 2017".
- Authorities' growth projection: "3.7 percent".
- Drivers supporting the 2017 rebound:
  - Strong harvest after the 2015–16 drought (good rainfall season).
  - Favorable prospects for gold, chrome and tobacco exports.
  - Lower demand for imported food.
- Constraints noted by staff:
  - Insufficient liquidity will continue to hamper imports and affordable financing.
  - Inflation and inflation expectations to rise with money creation and increasing import prices due to controls.
- Inflation projections:
  - Annual average inflation set to be "2–3 percent", implying an increase to "about 7 percent by year-end".
- Current account:
  - External current account deficit projected to narrow to "about 3¾ percent of GDP" (from an average of "13¼ percent in 2012–15"), still affected by diminished imports.

### Medium-term scenarios and outlook
- Optimal scenario (Scenario A):
  - Requires reform and reengagement, strong efforts by authorities, and reciprocal international support.
  - Potential upside: physical infrastructure adequate; human capital high; agriculture, mining, and industry have substantial underutilized capacity.
  - Structural, political, and governance reforms (including human and property rights) could facilitate debt treatment and unlock financial support.
- Downside risks (Scenario B):
  - If authorities cannot restrain fiscal spending or face additional exogenous shocks, the status quo could be very fragile.
  - Risks include rapidly rising inflation, growing shortages of foreign exchange and imported goods, increasing discounts of quasi-currency instruments, financial sector distress, and social tensions.
- Baseline scenario:
  - Delayed fiscal consolidation with some expenditure restraint (wage and hiring freeze, cut capital spending), but insufficient to address macroeconomic imbalances.
  - Fiscal deficits remain higher than optimal, some monetary financing continues, and issuance of bond notes restrained.
  - Consequences: rise in inflation affecting real wages, overappreciated real exchange rate, scarcity of U.S. dollars or availability only at a premium, intensified administrative controls, accentuated economic distortions, deteriorating macro-financial and external imbalances, and growth stagnation over the medium term.
  - Informal economy likely to continue coping with cash scarcity and controls.

### Baseline economic indicators (Prel. 2016; Projections 2017–22)
- Real GDP growth (annual percentage change):
  - Prel. 2016: "0.7"
  - 2017: "2.8"
  - 2018: "0.8"
  - 2019: "0.3"
  - 2020: "-0.3"
  - 2021: "-0.7"
  - 2022: "-0.9"
- Nominal GDP (US$ millions):
  - Prel. 2016: "16,124"
  - 2017: "17,105"
  - 2018: "18,904"
  - 2019: "20,601"
  - 2020: "21,434"
  - 2021: "22,218"
  - 2022: "22,877"
- Consumer price inflation (annual average):
  - Prel. 2016: "-1.6"
  - 2017: "2.5"
  - 2018: "9.5"
  - 2019: "8.3"
  - 2020: "4.0"
  - 2021: "4.0"
  - 2022: "4.0"
- Central government (percent of GDP)
  - Revenue and grants:
    - Prel. 2016: "21.7"
    - 2017: "21.7"
    - 2018: "21.1"
    - 2019: "20.9"
    - 2020: "20.7"
    - 2021: "20.6"
    - 2022: "20.5"
  - Expenditure and net lending:
    - Prel. 2016: "30.8"
    - 2017: "28.0"
    - 2018: "25.4"
    - 2019: "25.0"
    - 2020: "24.7"
    - 2021: "24.7"
    - 2022: "24.7"
  - Overall balance (cash basis):
    - Prel. 2016: "-8.8"
    - 2017: "-5.9"
    - 2018: "-4.3"
    - 2019: "-4.1"
    - 2020: "-4.1"
    - 2021: "-4.1"
    - 2022: "-4.0"
- Financing:
  - Prel. 2016: "5.9"
  - 2017: "4.3"
  - 2018: "4.1"
  - 2019: "4.1"
  - 2020: "4.1"
  - 2021: "4.0"
  - Of which RBZ overdraft:
    - Prel. 2016: "1.2"
    - 2017: "1.6"
    - 2018: "0.5"
    - 2019: "0.5"
    - 2020: "0.5"
    - 2021: "0.4"
- Current account balance (excluding official transfers) (US$ millions):
  - Prel. 2016: "-662"
  - 2017: "-617"
  - 2018: "-159"
  - 2019: "-79"
  - 2020: "-211"
  - 2021: "-370"
  - 2022: "-439"
- Gross international reserves (months of imports of G&S):
  - Prel. 2016: "0.6"
  - 2017: "0.4"
  - 2018: "0.4"
  - 2019: "0.4"
  - 2020: "0.3"
  - 2021: "0.3"
  - 2022: "0.3"
- Domestic debt (percent of GDP):
  - Prel. 2016: "24.8"
  - 2017: "28.2"
  - 2018: "30.1"
  - 2019: "32.0"
  - 2020: "34.9"
  - 2021: "37.7"
  - 2022: "40.6"
- External debt (percent of GDP):
  - Prel. 2016: "44.8"
  - 2017: "42.4"
  - 2018: "38.3"
  - 2019: "35.0"
  - 2020: "33.5"
  - 2021: "32.2"
  - 2022: "31.3"

### Policy discussions and recommendations
- Overarching objective:
  - Strong fiscal and structural reforms to restore domestic and external equilibria and unleash Zimbabwe’s potential (supporting Scenario A).
- Fiscal consolidation (urgent and critical):
  - Persistent large deficits crowd out private investment, exacerbate external imbalance, and undermine currency confidence.
  - Failure to curtail monetary deficit financing could rapidly escalate the price level.
- 2017 budget developments:
  - 2017 budget target of an overall deficit of "around 2 1/3 percent of GDP" proved overly optimistic.
  - Expected deficit around "6 percent of GDP" due to reversed revenue measures, inability to implement expenditure cuts, and expanded agricultural support programs.
  - Financing plans included issuance of a bond by the social security agency and potential loan from commercial lenders at market terms.
- Command Agriculture program (Box 3):
  - Government borrowed domestically to support maize and other production after importing "$250 million worth of maize" following the 2015/16 drought.
  - Government buy price for GMB set at "$390 per ton of maize", more than double the current world price.
  - Cost of command programs for maize and wheat likely to be "in the range of 2 to 3 percent of GDP by the end of 2017" depending on loan recovery and market prices.
  - Staff recommendation: redesign agricultural interventions to limit fiscal risks, realize savings of "around 1–2 percent of GDP lower per year", and promote private sector participation where feasible.
- Wages and public employment:
  - Public sector wage bill around "19 percent of GDP" viewed as unsustainable.
  - Staff suggested measures including suspending the 13th salary ("1 percent of GDP"); downsizing civil service and eliminating ghost workers; compressing remuneration while protecting social priorities ("1 to 2 percent of GDP").
  - Political constraints acknowledged; consensus-building and technical/financial support suggested.
- Revenue measures:
  - Authorities report enforcement actions and reduced zero-rating under VAT bearing fruit.
  - Staff recommended phasing out income tax and capital gains exemptions, restricting VAT exemptions to critical low-income items, reducing administration gaps in transit, export controls and excise taxes, and improving fiscal governance in mining.
  - Staff estimates that administrative and policy measures, together with broader reforms to reduce informalization, could raise the revenue-to-GDP ratio "3 percentage points higher than in the baseline scenario over the medium-term".
- Efficiency savings:
  - Potential savings from reducing foreign travel expenses, nonessential procurement, and provision of government vehicles.
- Macro-financial linkages and exchange rate issues:
  - Overvaluation of the real exchange rate has harmed the dollarized regime; formal economy uses bond notes, electronic balances, and T-bills as media of exchange.
  - Expansionary fiscal policy and deteriorating confidence attributed to capital outflows and weak external position.
  - Refrain from further monetary financing of the deficit and contain domestic debt; RBZ’s ability to honor bank obligations depends on government moving to fiscal surpluses and/or obtaining significant external financing.
- Banking sector vulnerabilities:
  - Heightened sovereign risk and insufficient RBZ reserves create liquidity and solvency risks due to bank assets in RTGS electronic balances and T-bills.
  - Upcoming reforms requiring valuation of assets at market prices could create recapitalization needs for several banks.
  - Since 2014, "50 correspondent relationships with banks based in Zimbabwe were lost".
  - Staff encouraged restoring banking relations and argued against interest rate caps.
  - Bank impaired portfolios increasing as payment capacity of borrowers is affected by import delays and liquidity shortages.

*Sources: Zimbabwean authorities and IMF staff calculations.*

### 29.      Dealing with NPLs has proven more challenging than anticipated. While ZAMCO’s

### cr17196 - 29.      Dealing with NPLs has proven more challenging than anticipated. While ZAMCO’s

### Non-performing loans (NPLs) and ZAMCO
- ZAMCO’s purchases of bad loans brought down NPLs in bank balance sheets, but the fiscal cost has been higher than expected.
- The assumed portfolio was twice the amount initially intended.
- The recovery of bad loans has been lower than expected.
- With the fiscal position in deficit, ZAMCO’s NPL assumption implies that the government is bearing the cost of socializing private losses through additional borrowing.
- Banks’ business models are affected by firms’ decisions to downsize operations or to recourse to the informal market in procurement of U.S. dollars for purchases abroad.
- Staff noted these developments are impairing the ability of corporates and individuals to meet bank obligations, and putting upward pressure on NPLs.
- Staff urged the authorities to work with banks in developing contingency planning to tackle these risks.
- Bolstering the AML/CFT framework, including by addressing the deficiencies identified in Zimbabwe’s 2016 AML/CFT Mutual Evaluation Report, could help to reduce the pressure on correspondent banking relationships.

### Structural constraints to private sector development
- The government’s large footprint in the economy continues to impede private sector development.
- Businesses are deterred by:
  - an uncertain policy environment,
  - a relatively heavy tax burden,
  - economic imbalances that complicate investment decisions,
  - a high degree of perceived corruption.
- Agricultural land is owned by the state, and there are no market-based mechanisms in place to have truly bankable land leases; this has affected meaningful investment in the sector.
- SOEs cover key areas of the economy (airline, electricity, water, railways, and mining); are inefficient in their service provision; and constitute a drain on the budget.
- Informalization has become increasingly widespread, with only a small percentage of the working population in formal employment.

### Progress and need for implementation of reforms
- Authorities reported progress on reforms to improve the business environment through the Special Economic Zones Act and the Rapid Results Reform Initiative with support from the World Bank.
- Authorities have examined bottlenecks to doing business and commenced work on institutional, legislative, and regulatory reforms targeted at promoting tourism and manufacturing, and bringing land back into productive use.
- Staff called for effective implementation of reforms to provide a level playing field for domestic and foreign actors.
- In mining, staff recommended making all leases public and avoiding contract negotiations on a case-by-case basis that depart from the established legal principles.
- On agriculture, staff noted that fully bankable leases are critical to restore access to credit and finance investment.
- Uncertainties about non-indigenous investors’ options need to be eliminated by implementing the indigenization policy in a fair and measured way.
- To complement governance improvements, steps should be taken to:
  - criminalize acts of corruption in line with the United Nations Convention against Corruption,
  - strengthen the Zimbabwe Anti-Corruption Commission,
  - publish comprehensive asset declarations of high-level officials.
- Some of the legislative reforms that have been approved by cabinet and have gone through first readings in parliament are (i) Movable Property Security Interest Bill, (ii) Insolvency Bill, (iii) Estate Administrators Act Amendment Bill, (iv) Ease of Settling Commercial and Other Disputes Bill, and, (v) A Deeds Act Amendment Bill.

### Management and oversight of SOEs
- Improving the management of SOEs will reduce the drain on the budget and improve the supply of public goods.
- Authorities acknowledged the need to reduce losses but highlighted difficulties of finding international partners given the country’s isolation and the SOEs’ huge debt overhang.
- With assistance of the World Bank, authorities drafted the National Code of Corporate Governance Bill to improve SOEs corporate governance and reporting requirements.
- Political obstacles have hampered more direct central control of SOEs; SOEs will continue to be largely overseen by line ministries.
- Stronger monitoring of financial operations of SOEs will be essential to reduce future recapitalization needs.

### Public financial management (PFM)
- Further improvements in PFM could promote good governance, budget credibility, and effectiveness of government expenditure.
- Budgetary processes need to be brought into line with fiscal objectives and available resources.
- ZIMASSET, the national development strategy, provides project proposals for budget preparation, but investment expenditure, squeezed out by current outlays, is well under one-tenth of the levels foreseen in the strategy.
- A joint venture law could potentially provide a way for PPPs to fill some of the infrastructure gap, but there is a need for strengthened transparency and accountability.
- A new procurement legal framework with an independent regulatory authority overseeing decentralized procurement entities has been introduced; the framework incorporates new inspection and evaluation arrangements, including possible sanctions for offending procurement officers and service providers.
- Staff supported efforts to improve the comprehensiveness of fiscal reporting and auditing processes.

### Staff appraisal — macroeconomic stabilization and policy priorities
- The severe challenges faced by the Zimbabwean economy require an immediate and commensurate response from the authorities.
- Zimbabwe’s international isolation constrains the economy and makes attracting external financing and investment difficult, increasing the importance of sound domestic policies.
- A concerted political consensus on the need for further adjustment and reform is essential.

Key policy priorities and assessments:
- Fiscal consolidation is urgent and inescapable:
  - Unsustainable modalities of deficit financing are undermining policy credibility, reducing resources for private sector development, and hampering international transactions.
  - Public sector employment costs are at the heart of current economic difficulties and need to be dealt with to halt the unsustainable increase of public debt.
  - This would require taking advantage of external expertise and seeking to mitigate negative social consequences.
  - Measures to enhance revenue collection and cut discretionary spending can help support consolidation.
- Achieving a sustainable fiscal stance is a sine qua non for stabilizing the monetary regime and restoring confidence:
  - Authorities must reduce the fiscal deficit and reestablish private sector confidence.
  - It is important to refrain from monetary financing of the deficit, contain the issuance of T-bills to prevent an accelerating discount of domestic paper to the U.S. dollar and a further worsening of a dire liquidity situation, and refrain from borrowing at unsustainable terms or by collateralizing future export proceeds.
- Financial sector supervision should be more proactive and focus on emerging risks:
  - Restoring confidence in the financial sector and allowing it to perform its intermediation role effectively is a main priority.
  - Bolstering the AML/CFT framework is critical for facilitating international transactions.
  - As the situation stabilizes, the authorities can also rollback the exchange controls.
  - With respect to the measures giving rise to the exchange restriction described in paragraph 11, staff does not recommend the Executive Board approval of the retention of the measures since there is no clear plan and timetable for their elimination.
- Authorities are encouraged to build on efforts underway to ensure full and deep implementation of the structural reform agenda:
  - Efforts include containing wages, establishing a one-stop shop for investors, creating Special Economic Zones with more liberal economic policies, and easing the difficulties of doing business.
  - Success will require consistent and transparent implementation of policies, laws, and regulations.
  - Combating corruption and improving governance will contribute to reducing the cost of doing business.

### Risks and upside opportunities
- Downside risks are clear and immediate, but there are significant opportunities on the upside.
- Zimbabwe has a strong endowment of natural resources and human capital.
- The resilience of the informal sector suggests the economy could recover quickly given the right policy framework.
- A strong reform agenda, including progress on human rights and property issues, could pave the way for reengagement with the international community, unlocking possibilities for financing, investment and debt relief essential to unlock Zimbabwe’s enormous potential.

*International Monetary Fund staff appraisal as presented in the cited chapter.*

### 40.      Staff recommends that the next Article IV consultation with Zimbabwe be held on the

### Staff recommendation on Article IV timing

### Consultation timing
- Staff recommends that the next Article IV consultation with Zimbabwe be held on the standard 12-month consultation cycle.

---

### Macroeconomic performance and projections (selected indicators)
- Real GDP growth (annual percentage change) 2012–2022: 13.6, 5.3, 2.8, 1.4, 0.7, 2.8, 0.8, 0.3, -0.3, -0.7, -0.9 (2012 through 2022, as listed).
- Nominal GDP (US$ millions) 2012–2022: 14,058; 15,224; 15,834; 16,072; 16,124; 17,105; 18,904; 20,601; 21,434; 22,218; 22,877.
- GDP deflator (annual percentage change) 2012–2022: 2.5, 2.9, 1.2, 0.1, -0.3, 3.2, 9.6, 8.7, 4.3, 4.4, 4.0.
- Consumer price inflation (annual average) 2012–2022: 3.7, 1.6, -0.2, -2.4, -1.6, 2.5, 9.5, 8.3, 4.0, 4.0, 4.0.
- Consumer price inflation (end-of-period) 2012–2022: 2.9, 0.3, -0.8, -2.5, -0.9, 7.0, 10.0, 7.0, 4.0, 3.5, 3.5.

---

### Fiscal sector (central government; percent of GDP and levels)
- Revenue and grants (percent of GDP) 2012–2022: 24.9, 24.6, 23.8, 23.3, 21.7, 21.7, 21.1, 20.9, 20.7, 20.6, 20.5.
- Expenditure and net lending (percent of GDP) 2012–2022: 25.5, 26.7, 25.4, 25.9, 30.8, 28.0, 25.4, 25.0, 24.7, 24.7, 24.7.
- Employment costs (incl. grants & transfers; percent of GDP) 2012–2022: 17.8, 18.2, 19.2, 18.9, 20.0, 18.5, 16.8, 16.2, 15.9, 15.5, 15.3.
- Capital expenditure and net lending (percent of GDP) 2012–2022: 2.5, 3.2, 2.3, 3.1, 6.0, 4.5, 3.8, 3.6, 3.5, 3.4, 3.3.
- Overall balance (cash basis; percent of GDP) 2012–2022: -0.5, -1.9, -0.9, -2.4, -8.8, -5.9, -4.3, -4.1, -4.1, -4.1, -4.0.
- Primary balance (cash basis; percent of GDP) 2012–2022: -0.4, -1.7, -0.6, -1.8, -8.1, -4.8, -3.1, -2.5, -2.3, -2.2, -2.1.

---

### Monetary and credit aggregates
- Domestic credit (net; annual percentage change) 2012–2022: 91.6, 6.2, 4.9, 14.1, 25.6, 3.1, 6.8, 8.0, 7.4, 7.5, 6.3.
- Credit to the private sector (annual percentage change) 2012–2022: 27.1, 3.7, 5.8, 6.0, 8.2, -10.0, -6.7, -3.7, -3.4, -2.2, -1.9.
- Bond notes + commercial bank deposits with central bank (levels/changes shown): 46.6, -0.4, 70.9, 21.3, 161.3, 29.3, 15.9, 4.6, 4.4, 4.2, 4.1.

---

### External sector and balance of payments (US$ millions unless otherwise indicated)
- Merchandise exports 2012–2022: 3,990; 3,835; 3,570; 3,614; 3,701; 3,821; 3,984; 4,185; 4,159; 4,208; 4,259.
- Merchandise imports 2012–2022: -6,710; -6,809; -6,306; -6,062; -5,236; -5,349; -5,076; -5,190; -5,213; -5,290; -5,361.
- Current account balance (excluding official transfers; US$ millions) 2012–2022: -1,818; -2,375; -2,395; -1,495; -662; -617; -159; -79; -211; -370; -439.
- Current account balance (percent of GDP) 2012–2022: -12.9, -15.6, -15.1, -9.3, -4.1, -3.6, -0.8, -0.4, -1.0, -1.7, -1.9.
- Gross international reserves (US$ millions, end-of-period) 2012–2022: 398; 284; 303; 339; 310; 221; 201; 181; 161; 141; 141.
- Gross international reserves (months of imports of goods and services) 2012–2022: 0.6, 0.4, 0.5, 0.6, 0.6, 0.4, 0.4, 0.4, 0.3, 0.3, 0.3.
- Net international reserves (US$ millions, e.o.p.) 2012–2022: 260; 149; 178; 222; 303; 213; 193; 173; 153; 133; 133.

---

### Debt and arrears
- Domestic debt (US$ millions, e.o.p.) selected years: 287; 479; 1,764; 2,281; 4,006; 4,830; 5,379; 3,779; 2,852;  (table continues).
- Domestic debt (percent of GDP) 2012–2022 (selected): 2.0, 3.1, 11.1, 14.2, 24.8, 28.2, 30.1, 32.0, 34.9, 37.7, 40.6.
- Public and publicly guaranteed external debt (US$ millions, e.o.p.) 2012–2022: 5,169; 5,389; 6,407; 6,613; 7,231; 7,259; 7,245; 7,216; 7,187; 7,164; 7,152.
- Public and publicly guaranteed external debt (percent of GDP) 2012–2022: 36.8, 35.4, 40.5, 41.1, 44.8, 42.4, 38.3, 35.0, 33.5, 32.2, 31.3.
- Of which: Arrears (US$ millions) 2012–2022: 4,439; 4,576; 4,718; 4,864; 5,014; 5,042; 5,028; 4,999; 4,970; 4,947; 4,935.
- Arrears (percent of GDP) 2012–2022: 31.6, 30.1, 29.8, 30.3, 31.1, 29.5, 26.6, 24.3, 23.2, 22.3, 21.6.

---

### Central government operations (levels and percent of GDP excerpts)
- Total revenue & on-budget grants (US$ millions) 2012–2022: 3,496; 3,741; 3,770; 3,737; 3,502; 3,714; 3,981; 4,302; 4,427; 4,575; 4,697.
- Tax revenue (US$ millions) 2012–2022: 3,279; 3,414; 3,519; 3,548; 3,237; 3,439; 3,676; 3,961; 4,071; 4,207; 4,318.
- Total expenditure & net lending (US$ millions) 2012–2022: 3,581; 4,065; 4,024; 4,156; 4,970; 4,783; 4,793; 5,146; 5,300; 5,486; 5,641.
- Cash expenditure (US$ millions) 2012–2022: 3,568; 4,027; 3,912; 4,117; 4,923; 4,719; 4,797; 5,149; 5,304; 5,477; 5,620.
- Employment costs (US$ millions) 2012–2022: 2,134; 2,344; 2,583; 2,579; 2,756; 2,709; 2,709; 2,848; 2,908; 3,015; 3,078.
- Overall balance (commitment basis; percent of GDP) 2012–2022: -0.6, -2.1, -1.6, -2.6, -9.1, -6.3, -4.3, -4.1, -4.1, -4.1, -4.1.
- Overall balance (cash basis; percent of GDP) 2012–2022: -0.5, -1.9, -0.9, -2.4, -8.8, -5.9, -4.3, -4.1, -4.1, -4.1, -4.0.

---

### Monetary survey highlights (central bank and deposit-taking institutions)
- Central bank Net Foreign Assets 2012–2018: -641; -731; -631; -624; -574; -685; -705.
- Monetary Base 2012–2018: 273; 272; 464; 563; 1,473; 1,907; 2,208.
- Broad Money (M3) 2012–2018: 3,719; 3,888; 4,377; 4,736; 5,638; 6,245; 6,714.
- Credit to Private Sector 2012–2018 (deposit-taking institutions): 3,447; 3,573; 3,741; 3,602; 3,497; 2,980; 2,726.

---

### Alternative scenarios (Table 5)
- Alternative Scenario A. Absence of Adjustment (selected 2017–2022 figures):
  - Real GDP growth (annual percentage change) 2017–2022: 3.1, -1.3, -3.6, -4.0, -3.7, -3.7 (note: table lists 3.1 for 2017 then negative thereafter).
  - Nominal GDP ($ millions) at parity 2017–2022: 17,291; 22,221; 32,744; 63,718; 190,770; 826,700.
  - Consumer price inflation (annual average) 2017–2022: 5.7; 30.2; 52.8; 102.7; 210.9; 350.0.
  - Implicit parallel market rate to US$1 2017–2022: 1.2; 1.6; 2.4; 4.8; 14.9; 66.7.
  - Overall balance (cash basis; percent of GDP) 2017–2022: -9.1; -10.4; -10.4; -10.4; -10.5; -10.7.
  - Gross international reserves (US$ millions) 2017–2022: 185; 167; 149; 137; 116; 92.
- Alternative Scenario B. Strong Adjustment (projections 2017–2022):
  - Real GDP growth (annual percentage change) 2017–2022: 3.1; 4.6; 6.0; 5.9; 5.8; 5.7.
  - Nominal GDP ($ millions) 2017–2022: 17,038; 18,252; 19,748; 21,338; 23,062; 24,902.
  - Consumer price inflation (annual average) 2017–2022: 2.7; 2.4; 2.1; 2.0; 2.2; 2.2.
  - Central government revenue and grants (percent of GDP) 2017–2022: 21.7; 22.0; 22.4; 22.7; 23.1; 23.4.
  - Central government overall balance (cash basis; percent of GDP) 2017–2022: -4.5; -1.7; -0.2; 0.5; 1.4; 1.9.
  - Gross international reserves (Months of Imports) 2017–2022: 0.7; 1.5; 2.4; 3.1; 3.3; 3.9.
  - Domestic debt (percent of GDP) 2017–2022: 27.0; 25.7; 23.9; 21.5; 18.4; 15.1.
  - External debt (percent of GDP) 2017–2022: 42.6; 41.9; 39.1; 36.5; 34.1; 31.9.

---

### Financial soundness indicators (selected, percent)
- Regulatory capital to risk-weighted assets 2012–2016: 11; 12; 17; 20; 24.
- Percentage of banks greater or equal to 10 percent 2012–2016: 89; 88; 86; 100; 100.
- Past-due loans to gross loans 2012–2016: 30; 32; 46; 43; 41.
- Nonperforming loans 2012–2016: 14; 15; 16; 12; 8.
- Return on assets 2012–2016: 1; 0; 1; 2; 2.
- Loans/deposits 2012–2016: 93; 104; 77; 85; 65.
- Liquid assets/total deposits 2012–2016: 40; 51; 49; 64; 78.

---

### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses (summarized)
- Strengthening of the U.S. dollar and/or higher international rates
  - Relative Likelihood: High
  - Impact if Realized: High — undermines competitiveness; exacerbates external current account and fiscal pressures; increases cost to source funding.
  - Policy Response: Increase labor market flexibility; implement structural reforms to improve business climate, productivity, and competitiveness; factor interest rate risks in sourcing funds; build fiscal buffers.
- Reduced external funding, including correspondent banking services
  - Relative Likelihood: High
  - Impact if Realized: High — impairs banks' intermediation, increases costs, reduces liquidity, worsens market segmentation.
  - Policy Response: Strengthen banks’ regulatory frameworks including AML/CFT; improve business environment and governance.
- Structurally weak growth in key advanced and emerging economies
  - Relative Likelihood: High/Medium
  - Impact if Realized: Medium to High — transmission via trade, financing, remittances; worsens BOP and liquidity.
  - Policy Response: Reduce budget deficit to create buffers; advance structural reforms; re-engage internationally for financial support.
- Failure to advance fiscal reforms
  - Relative Likelihood: Medium/High
  - Impact if Realized: High — persistent high fiscal borrowing, crowding out private sector, weakening financial sector, threatening price stability via bond note supply increases.
  - Policy Response: Build domestic political consensus for fiscal reforms; strengthen tax administration; reallocate public spending toward social and capital spending; leverage private sector.
- Stalled reengagement and structural reforms until after 2018 elections
  - Relative Likelihood: High
  - Impact if Realized: High — incomplete ad hoc adjustments, worsening imbalances and confidence; delays in arrears clearance and access to external financing.
  - Policy Response: Advance structural reforms to improve external position and secure international support; act to enable arrears clearance process and external financing from IFIs.

*Source: IMF staff report material (tables and text as provided).*

### Annex II. Climate Change: Risks and Policy Options

### Annex II. Climate Change: Risks and Policy Options

### Recent climate shocks and immediate impacts
- The 2015/16 El-Niño induced drought and the heavy rains of early-2017 exposed Zimbabwe’s vulnerability to climatic variations.
- Direct impacts:
  - Agriculture (employer of nearly 70 percent of the population, directly or indirectly) was hurt by drought, leading to:
    - sharp decline in land under cultivation after the 2014/15 season;
    - strained irrigation capacity;
    - livestock destocking and increased migration by pastoral farmers;
    - marked spike in malnutrition and reduced employment opportunities.
  - Floods of early‑2017:
    - damaged crops and infrastructure;
    - contributed to climatic-induced armyworm infestations;
    - led to outbreaks of typhoid and malaria and increased fatalities due to a stretched healthcare system.
  - Hydro-generation disruption reduced electricity supply, impacting industrial production, particularly energy-intensive mining industries.
  - External trade: trade balance deteriorated as electricity and grain imports increased markedly and agricultural exports declined.
  - Fiscal: expenditure picked up and domestic debt increased as the government expanded the command agriculture program and distributed free grains.

### Observed social and health consequences
- The poor have been disproportionately affected because they settle in the most vulnerable areas with weak housing standards.
- Deteriorating infrastructure has worsened water quality and increased waterborne diseases.
- The healthcare system’s capacity was insufficient to cope with malaria and typhoid outbreaks, resulting in a rise in fatalities.

### Longer-term climate risks and sectoral vulnerabilities
- Climate projections and regional trends:
  - Sub-Saharan Africa has seen temperature increases and average rainfall declines.
  - Global warming by 1.5°–2°C could lead to a 40–80 percent reduction in present maize, millet, and sorghum cropping areas in Africa (World Bank 2013), disproportionately affecting subsistence agriculture households.
- Sectoral risks for Zimbabwe:
  - High vulnerability to losses in agricultural productivity, infrastructure, and food security.
  - Hydroelectric power generation (which supplies about 40 percent of electricity needs) could drop drastically.
  - Declines in wildlife stock could affect tourism arrivals.
  - Changing weather patterns could disrupt traditional business models and result in stranded assets (roads, bridges, dams).
  - The $4 billion Batoka project (shared with Zambia) increases risks due to fluctuations in water levels.
  - Changing water quality could affect fishing.
- Physical infrastructure and water storage:
  - Zimbabwe has the second highest number of waterbodies in the region, but lack of maintenance and silting have affected storage capacity.

### Structural and institutional drivers of vulnerability
- The economy’s structure and limited adaptation capacity render Zimbabwe highly vulnerable:
  - Strained fiscal position and limited access to external financing inhibit investment in adaptation and mitigation.
  - High dependence on rain‑fed agriculture and weather-sensitive activities (herding).
  - An increasing share of the population lives just above the poverty line; small climatic shocks often translate into significant increases in poverty.
  - Low access to credit and insurance reduces scope for risk transfer and financing for post-disaster relief and reconstruction.

### Policy options: risk reduction and risk transfer
- Overarching priority: integrate climate change into development planning using a mix of risk reduction and risk transfer, with the private sector taking the lead in many areas.
- Risk reduction measures:
  - Diversify away from agriculture toward private sector-led manufacturing and services.
  - Invest in irrigation and water infrastructure in line with a targeted program integrated with the budget process.
  - Increase agricultural productivity and food security by:
    - focusing on crops more resilient to water shortages;
    - ensuring better preparedness and spatial planning.
  - Restore access to financing through a well-functioning payment system and developed debt markets.
  - Implement financial inclusion initiatives to support pastoral farmers.
  - Develop well-targeted social safety nets and cost-effective primary healthcare systems to contain cascading disaster impacts (e.g., rain → floods → disease epidemics).
- Risk transfer measures:
  - Increase household access to cost-effective financial instruments (e.g., mobile-driven initiatives in East Africa) to help poor households adapt and hedge against climate shocks.
  - Risk transfer toward aid providers requires Zimbabwe’s reengagement with the international community to become eligible for quicker and better-targeted disaster relief, including from international financial institutions.

### Fiscal and policy constraints; short-term stance
- Given current constraints, Zimbabwe will likely retain a higher than optimal level of risk in the near-term.
- Self-insurance and policy buffers recommended:
  - Rebalance the expenditure profile to create room for infrastructure and healthcare investment.
  - Raise revenues, including consideration of a potential carbon tax.
  - Redouble efforts to restore access to credit.
  - Accelerate reengagement with the international community.

*Prepared by Vimal Thakoor and reviewed by Ana Lucía Coronel.*

### 2. The current account balance, which had been characterized by acute deficits, has

### 2. The current account balance, which had been characterized by acute deficits, has

### Current account trends and drivers
- The current account deficit fell sharply to 4.1 percent of GDP in 2016 from 15.1 percent of GDP in 2014, driven by a sharp import compression rather than a recovery in exports.
- Staff projects the current account deficit to further contract to 3.6 percent of GDP in 2017.
- Export growth is expected to be about 3.2 percent in 2017 due to improved prices for minerals and tobacco; manufacturing exports will remain constrained by outdated equipment.
- Imports are projected to increase by 2.2 percent in 2017, at a slower pace than export growth.
- Total imports declined by about 17½ percent in the two years to 2016, mainly due to foreign exchange shortages and the government’s import and exchange controls.

### Trade, exports, and foreign exchange shortages
- The export-to-GDP ratio has remained subdued since 2013 because depressed commodity prices and weak industry competitiveness have curbed export growth.
- Foreign exchange shortages have compressed capital imports and weakened domestic production capacity.
- Foreign exchange shortages are anticipated to continue to constrain imports; domestic manufacturers may benefit from the de facto discount of electronic balances to the U.S. dollar, which may reduce their cost base.
- The “Exchange Control Directive RR86 (ECOGAD8/2016)” (implemented in May 2016) prioritizes allocation of foreign exchange to: 1) net exporters who import raw materials or machinery to generate exports, 2) importers of raw materials and machinery for local production that substitute imports, and 3) imports of critical and strategic goods. Authorities also introduced repatriation requirements on export proceeds ranging from 50 to 100 percent.

### Exchange rate, REER assessment, and reserve implications
- Quantitative estimates using the Fund’s EBA-lite methodology for 2015 indicate:
  - The current account gap is 7.5 percent of GDP.
  - The real exchange rate (REER) gap varies between 26 and 48 percent (table presents REER-Gap 47.6% and REER-Gap 23% depending on method).
  - CA-Actual is -8.3%; CA-Norm is -0.8%; CA-Gap is -7.5%.
  - ln(REER)-Actual is 4.67; ln(REER)-Norm is 4.41.
- The fiscal policy gap (0.8 percent) and the international reserves shortage (1.2 percent) have contributed to 26 percent of the external gap; further structural reforms could address the remainder.
- Zimbabwe’s REER depreciated somewhat after 2010, but low productivity, limited trade openness, and foreign exchange shortages signal a large overvaluation of the real exchange rate and the consequent need for a significant depreciation.
- 2015 is used as the baseline for the assessment since 2016 economic variables were affected by administrative measures on current and capital account transactions.

### Capital flows and investor confidence
- Net foreign capital flows deteriorated in 2016, reflecting a significant fall in foreign investor confidence.
- Foreign direct investment shrunk by 14 percent in 2016; portfolio investment shrunk by 78 percent.
- Public sector access to credit has largely dried up due to the arrears situation; private sector access to long-term external credit is almost non-existent.
- In 2016, the Zimbabwe Investment Authority (ZIA) approved projects worth $2.3 billion, indicating some investor interest, particularly in mining and energy, but structural reforms are necessary to translate interest into real investment.

### Market perceptions and implied premium
- The Old Mutual Implied Rate (OMIR) has been lower than the market exchange rate (between the pound sterling and the U.S. dollar) since August 2016, and increasingly diverged thereafter.
- This divergence reflects a perceived 50 percent premium for investing in the country.
- Given the dollarized system, this perception may have translated into a nominal depreciation of the exchange rate but a de facto real overvaluation of the currency.

### Risks and outlook
- The external position is likely to deteriorate further in the absence of adjustment.
- A further strengthening of the U.S. dollar would pose additional risks to external competitiveness.
- Increased inflation pressures from monetary financing of the deficit and bond notes could potentially result in increased REER appreciation in the near term.

### Policies to achieve external stability (recommendations and constraints)
- Intensive structural reforms to strengthen competitiveness are essential.
- The business environment poses challenges: the World Bank’s Doing Business indicators show a drop of four positions for Zimbabwe.
- The Country Policy and Institutional Assessment (CPIA) reflects improvements across most criteria, but the index remains at a low level, pointing to the need to intensify fiscal and structural reforms.
- Wages: Zimbabwe’s minimum wage for general workers range from $200 to $300, significantly higher than neighboring Botswana, Mozambique, and Zambia where it tends to be around $100 (and broadly in line with proposed wages South Africa is considering introducing next year).
- Uncertainty over human rights and security of property deters foreign investors.

### Financial sector health and fiscal financing pressures (Annex V summary)
- The financial sector is largely bank-based: total assets held by the 13 commercial banks are equivalent to almost 50 percent of GDP; nearly 24 percent of these assets are held by the 6 foreign-owned banks.
- Foreign-owned banks account for 42 percent of market share; one domestically-owned bank has more than 30 percent market share.
- On average, 50 percent of banks’ income is interest based; around 40 percent originates from fees and commissions.
- Elevated fiscal financing needs are crowding out private sector credit and raising operational risks for banks and corporates.
- The banking sector faces asset-composition risks: increases in RTGS electronic balances and T-bill holdings have come at the expense of loans to the economy.
  - Domestically-owned banks hold an increasing share of assets in T-bills; foreign-owned banks hold a higher share in RTGS electronic balances.
  - The mismatch between these balances and the RBZ’s available foreign exchange renders much of these obligations inaccessible and illiquid.
- T-bills are no longer risk-free and liquid; anecdotal evidence points to discounts of up to 45 percent.
  - The industry could lose up to 15 percent of its capital base (about 1 percent of GDP) for every 10 percent discounting of T-bills, with domestically-owned banks at higher risk.
  - Staff estimates that for every 10 percent discount in RTGS balances, bank capital would decline by the equivalent of 0.9 percent of GDP, based on end-March numbers.
- ZAMCO developments and risks:
  - ZAMCO doubled the amount of purchased NPLs to over $800 million (5 percent of GDP).
  - ZAMCO expects to recoup about 60–65 percent of its NPL holdings; recovery has been slower than anticipated.
  - When NPLs are purchased by ZAMCO, banks’ T-bill holdings increase, releasing little liquidity for fresh credit to the economy.
- Credit contraction and segmentation:
  - Banks’ credit portfolio shrunk in 2016; four sectors (industry, individuals, agriculture, and transport and distribution) accounted for nearly 75 percent of all credit to the economy.
  - Foreign-owned banks are less willing to increase exposure to domestic firms, increasing pressure on domestically-owned banks.
  - Banks’ return on assets was around 2 percent in 2016.
- The expansion in ZAMCO’s mandate increases risks on the public-sector balance sheet.
- The ability of banks to intermediate effectively can only be restored as the fiscal position strengthens and confidence improves.

*Prepared by Yeu Jin Jung and reviewed by Ana Lucía Coronel and Joe Thornton.*

### 1.      The IMF Zimbabwe team led by Ms. Ana Lucía Coronel (mission chief) met with the

### cr17196 - 1.      The IMF Zimbabwe team led by Ms. Ana Lucía Coronel (mission chief) met with the

### Meeting and Overall Assessment
- The IMF Zimbabwe team led by Ms. Ana Lucía Coronel (mission chief) met with the World Bank Zimbabwe team, led by Ms. Camille Nuamah (country manager) on May 11, 2017.
- Teams concurred on:
  - The challenging economic situation.
  - The needed policy response and corrective actions.
  - The necessity of urgent fiscal adjustment, deep-seated structural reforms, and external financing to address fundamental economic imbalances.

### Short-term Priorities and Key Policy Directions
- Immediate priorities:
  - Reduce public sector employment costs.
  - Reverse central bank financing of the budget.
- Structural and medium-term priorities:
  - Restore the health of the financial sector.
  - Improve public financial management and governance.
  - Rebalance the economy away from the public sector toward the private sector.
  - Reduce the cost of doing business by tackling infrastructure bottlenecks.
  - Upgrade regulatory and legal frameworks to attract investment.
  - Regain creditor support for reengagement and unlock external financing.

### Division of Labor: Agreed Support Areas
- PFM reform:
  - Fund: Continue engagement on fiscal reform agenda and restore fiscal sustainability; offer TA on containing fiscal risks from SOEs and improving budget monitoring and reporting.
  - Bank: Support gradual rollout of program-based budgeting in line ministries; modernize public procurement (including new legislation), financial management and reporting; enhance internal controls and internal auditing; enhance external audit oversight and parliamentary oversight; expand IFMIS to public authorities (especially local governments) currently not covered; work towards stronger enforcement of government rules in SOEs; expand oversight and transparency of extra-budgetary funds as part of a joint World Bank–Ministry of Finance and Economic Development review.
- Fiscal policy:
  - Fund: Continue helping authorities make progress on tax reform; ongoing TA on tax policy, debt management and budget preparation; AFRITAC South to support revenue administration.
- Mining regulatory framework, fiscal policy and tax administration:
  - Bank: Oversee unified mining fiscal model and monitor progress on the “options note” on mining fiscal policy.
- Business environment reform:
  - Bank: Support reforms to improve ease of doing business (per Doing Business indicators); prepare a new Companies Code; formulate a road map to an omnibus investment policy framework led by the Office of the President and Cabinet.
- Financial sector reform:
  - Bank: Support RBZ in banking supervision and crisis resolution, credit infrastructure, financial inclusion, and anti-money laundering and combating financing of terrorism; prepare diagnostic on SME and microfinancing.
  - Fund: Focus on contingency planning.
- Reform of the statistical system:
  - Bank: Support design and implementation of the ongoing Poverty Income and Consumption Expenditure Survey (PICES) 2016/17.
  - Fund: Offer TA in national accounts, monetary statistics, balance of payments, and government finance statistics.
- Debt and arrears strategy:
  - Bank and Fund staff: Continue supporting authorities in producing the debt sustainability analysis.
- Poverty Analysis and Poverty Reduction Strategy:
  - Bank: Provide TA to support preparation of a poverty reduction strategy for 2018–23 following delivery of the interim poverty reduction strategy paper covering 2016–18.

### Information Sharing Agreements
- Fund will be kept informed about analysis and conclusions of Bank missions and progress in all macro-critical structural reform areas; Fund will receive the Bank’s outputs on these topics.
- Bank will be kept informed of progress in areas where the Fund takes the lead; Bank will receive the Fund’s outputs, as requested.

### Joint Work Program: May 2017–April 2018 (high-level elements)
- Mutual information on relevant work programs:
  - Bank: Investment Projects (e.g., PFM Enhancement Project; National Water Project; Public Procurement Modernization Project; Health Sector Development Project); Technical Assistance (SOE Reform; Doing Business and Investment Policy including SMEs; Financial Sector Reform; Mineral Sector Reform; Climate Change; Energy Sector; Transport Sector; Program-based budgeting; Health and Nutrition Sector; Education Sector; Social Protection and Safety Nets; Land Policy and Administration; Poverty Monitoring and Analysis); Studies and Lending (Public Expenditure Review).
    - Timing/notes: Ongoing, all; All beyond mid-2017, except where indicated otherwise; Expected delivery May 2018.
  - Fund: Macroeconomic Policy Analysis and Policy Advice (Article IV 2017); Technical Assistance (Macro-fiscal forecasting and budget preparation and execution; Customs and tax administrations; Comprehensive, timely, and accurate accounting and financial reporting; Financial crisis management; Strengthening data compilation and dissemination).
    - Timing/notes: Q2 2017; Ongoing for several items.
- Requests for inputs:
  - Bank provides to Fund: Updates on policy reform work (including increasing mining sector transparency, strengthening human resource and payroll management, PFM reform, improving the business climate, I-PRSP); macro framework; timing, scope, and conclusions of Bank’s missions; update on arrears clearance. (Ongoing)
  - Fund provides to Bank: Updates on program discussions; updates on policy reform work (PFM, tax and financial sector reforms); timing, scope, and conclusions of missions. (Ongoing)
- Joint products and missions in next 12 months:
  - Debt Sustainability Analysis — Q2:2017

### Relations with the African Development Bank Group (as of May 19, 2017)
- AfDB presence in Zimbabwe since 2009, focused on:
  - Rehabilitation of basic infrastructure.
  - Governance and institutional capacity strengthening.
  - Supporting private sector development.
  - Emphasis on gender and youth empowerment, climate resilience, green growth, and advisory services.
- Active portfolio:
  - Sixteen (16) operations with a total commitment of UA 159 million (US$ 217 million).
  - Portfolio composition: African Development Fund Grants (59.9 percent), AfDB loan for Private Sector (15.0 percent), trust funds administered by the Multi-Donor Trust Fund for Zimbabwe (23.7 percent), other trust funds (1.4 percent).
  - Sectoral shares: water supply and sanitation 32.8 percent; power 30.3 percent; governance and institutional support 16.6 percent; financial 11.3 percent; agriculture 4.6 percent; social 3.9 percent; transport 0.5 percent.
- ZimFund and donor commitments:
  - Donors’ current commitments to the ZimFund amount to US$145 million.
  - ZimFund Phase 1 water project: US$43.61 million — physical and consultancy works completed in Harare, Chitungwiza, Chegutu, Mutare, Masvingo, and Kwekwe.
  - Phase 1 power project: US$39.6 million — three work contracts on distribution and sub-transmission reinforcements and Hwange Power Station Ash Plant Rehabilitation.
  - Phase 2 water supply and sanitation project: US$36 million targeted at Harare, Chitungwiza, Redcliff and Ruwa.
  - Energy project partly funded to the tune of US$15.4 million.
- AfDB support also leveraged resources for rehabilitation of Kariba Dam, Bulawayo water and sanitation, Alaska-Karoi energy security; supported Integrated Urban Water Management planning in Marondera Municipality; assisted with Energy and Transport Sector Master Plans and investment specialist capacity.
- Economic and financial governance support: TA and capacity building in PFM, statistics, debt management, revenue management, procurement reforms, mining sector governance; support to RBZ’s supervisory role and SOE reforms; private sector support via direct and regional financial institution investments.
- Re-engagement process: Bank Group co-hosted forums with IMF and World Bank to accelerate re-engagement. Government has cleared debt arrears with the IMF and is expected to clear arrears with AfDB and World Bank per debt arrears clearance strategy.

### Statistical Issues (as of May 19, 2017)
- General:
  - ZIMSTAT provides sufficient data and largely complies with international standards despite resource constraints.
- National Accounts:
  - Progress in following 2008 SNA guidelines; scope being expanded including quarterly national accounts; staff resources insufficient.
  - ZIMSTAT revised GDP data from 2009 to incorporate grant-in-aid items previously omitted, leading to an upward revision in the GDP series; authorities working on rebasing GDP numbers.
  - 2017 legal amendment allows ZIMSTAT to share anonymized micro data; no progress on legal amendment to allow Zimbabwe Revenue Authority to share tax data needed for quarterly national accounts.
  - Authorities undertaking PICES 2017 to provide data on income distribution, consumption level, private consumption, living conditions, CPI weights, production account of agriculture and poverty mapping.
- Price Statistics:
  - ZIMSTAT compiles monthly CPI with weights based on 2011/12 PICES with a December 2012 base; CPI compiled since January 2013 expanded geographic coverage and basket items.
  - ZIMSTAT compiles quarterly PPI based on December 2009 with December 2008 weights; has not yet adopted 2013 STA TA mission recommendations to update CPI basket, increase frequency of perishable item collection, and expand PPI coverage to include exports.
  - Also compiles monthly building material index, civil engineering index and producer price index.
- Government Finance Statistics:
  - MoFED collects revenue and expenditure data for budgetary central government; publishes quarterly along with annual and mid-term budget statements.
  - Data on government financing have improved; MoFED moving to GFSM 2001.
- Monetary Statistics:
  - RBZ migrated to MFS reporting to the Fund in late 2015 based on SRFs.
  - Consultations ongoing with STA on classification of certain line items in a dollarized/multi-currency monetary regime, notably distinction between national currency and foreign currency denominated assets and liabilities.
- External Sector Statistics:
  - RBZ migrated from BPM4 to BPM6 in December 2016 and submitted data to STA in accordance with BPM6.
  - Gaps remain on financial accounts, especially reinvested earnings and trade credit; latest survey done in 2016 before migration to BPM6 and inconsistent with BPM6.
  - Compilation of quarterly BOP statistics on BPM6 envisaged by December 2017.
  - RBZ receiving TA from IMF and DfID under EDDI-II Project for Balance of Payments Module 1.
- International Investment Position:
  - Progress on IIP compilation with IMF assistance under EDDI II; missing stock data on FDI and portfolio investments to be obtained from planned Foreign Private Sector Survey.
- Data Standards and Quality:
  - Zimbabwe participates in the e-GDDS from November 2002. e-GDDS metadata on IMF DSBB site last updated April 2013. No data ROSC available.
- Reporting to STA:
  - Zimbabwe reports external sector statistics mainly BOP and currency composition of foreign reserves to STA.
  - Zimbabwe does not report national accounts and price statistics to STA for dissemination in IFS and BOP Statistics Yearbook.
  - Reporting of GFS to STA needs improvement; no sub-annual data reported.

### Selected Data Reporting Table Highlights (as of May 19, 2017)
- International reserve assets and reserve liabilities of the monetary authorities: Date of latest observation Mar. 2017; Date received May 2017; Frequency of data W; Frequency of reporting W; Frequency of publication M.
- Reserve/base money: Date of latest observation Mar. 2017; Date received May 2017; Frequency of data W; Frequency of reporting W; Frequency of publication M.
- Broad money: Date of latest observation Mar. 2017; Date received May 2017; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- Central bank balance sheet: Date of latest observation Mar. 2017; Date received May 2017; Frequency of data W; Frequency of reporting M; Frequency of publication M.
- Consolidated balance sheet of the banking system: Date of latest observation Dec. 2016; Date received May 2017; Frequency of data Q; Frequency of reporting Q; Frequency of publication NA.
- Interest rates: Date of latest observation Feb. 2017; Date received May 2017; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- Consumer price index: Date of latest observation Mar. 2017; Date received May 2017; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- Central government revenue, expenditure, balance and composition of financing: Date of latest observation Mar. 2017; Date received May 2017; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- GDP/GNP: Date of latest observation 2015; Date received May 2017; Frequency of data A; Frequency of reporting A; Frequency of publication A.
- Note: This table reflects data submission as of May 19, 2017.

### Debt Sustainability Analysis: Key Findings (Staff Report for the 2017 Article IV Consultation)
- Zimbabwe is in debt distress, and its total public and external debt is unsustainable.
- With longstanding external arrears, foreign financing has been scarce; large fiscal deficits are lately being financed through domestic borrowing.
- Domestic debt, which was negligible five years ago, has increased sharply to more than 25 percent of GDP, and is on an unsustainable trajectory.
- External debt indicators related to solvency continue to breach their thresholds under the baseline scenario; liquidity (debt service) indicators are deteriorating over time.
- Attaining debt sustainability would require sharp fiscal consolidation and external support from the international community.
- Authorities broadly concurred with staff’s assessment and were confident that envisaged reengagement with the international community will help restore debt sustainability.

*ZIMBABWE — INTERNATIONAL MONETARY FUND*

### 2.9 in 2015, and categorized as weak policy performance. Zimbabwe’s fiscal year runs from January 1 to December

### ZIMBABWE

### BACKGROUND AND RECENT DEVELOPMENTS
- Real GDP growth decreased to 0.7 percent in 2016 from 1.4 percent in 2015.
- A severe drought produced the lowest maize harvest in 25 years.
- Annual fiscal expenditures increased by 5 percent of GDP in 2016, while revenues fell by 2 percent of GDP.
- Public debt reached almost 70 percent of GDP.
- Arrears to the IMF-administered Poverty Reduction and Growth Trust were cleared in October 2016, restoring PRGT eligibility and lifting the declaration of noncooperation.
- Discussions remain ongoing to clear arrears to the World Bank and the African Development Bank; debt treatment from bilateral creditors remains constrained.
- Large fiscal deficits are being financed domestically through central bank advances and T-bill issuance; public domestic debt almost doubled to 25 percent of GDP in 2016.
- Administrative measures on capital and current account transactions were introduced in May 2016.

### MACROECONOMIC ASSUMPTIONS
- Annual real GDP growth:
  - Projected to be just under 3 percent in 2017.
  - Medium term: near zero growth (a range of 0.3 to -0.3 percent) through 2022.
  - Thereafter growth assumed to increase to around 2 percent a year.
- Average inflation:
  - Projected to pick up in the short term to 8–9 percent.
  - Stabilize at 2 percent over the longer term.
- Exports (nominal terms): anticipated to grow at about 3 percent per year over the projection period.
- Imports: constrained in the near term by foreign exchange controls, then reach 3 percent annually in the medium and longer terms.
- Non-interest current account deficit: expected to stabilize at around 1 percent of GDP.
- Government revenues: projected to reach 21 percent of GDP by 2018.
- Primary expenditure: projected to fall gradually from 29.8 percent in 2016 to 21 percent by the end of the projection period.
- New external borrowing: assumed to average just 1½ percent of GDP, with a grant element close to zero.
- External arrears: expected to remain in place; accumulation of arrears assumed only related to debt currently not being serviced.
- International reserves: projected to remain around the current low level.

### DEBT SUSTAINABILITY INDICATORS
- PPG external debt estimated at 44.8 percent of GDP as of end-2016, of which 70 percent stands in arrears.
- Private external debt estimated at 13 percent of GDP.
- As of end-2016:
  - PV of PPG external debt-to-GDP ratio: 41.8 percent.
  - PV of debt-to-revenue ratio: 192.3 percent.
  - PV of debt-to-export ratio: 168.6 percent.
- External debt in relation to exports remains above the threshold throughout the 20-year projection period by a substantial margin of around 70 percent.
- Total external debt outstanding:
  - 2013: 7,251 (U.S. dollars million)
  - 2014: 8,872 (U.S. dollars million)
  - 2015: 8,728 (U.S. dollars million)
  - 2016: 9,348 (U.S. dollars million)
  - Percent of GDP: 47.6 (2013), 56.0 (2014), 54.3 (2015), 58.0 (2016)
- External debt composition (end-2016, U.S. dollars million, percent of GDP):
  - Public and Publicly Guaranteed: 7,231 — 44.8
  - Bilateral Creditors: 4,183 — 25.9
    - Paris Club: 3,041 — 18.9
    - Non Paris Club: 1,142 — 7.1
  - Multilateral Creditors: 2,518 — 15.6
    - World Bank: 1,402 — 8.7
    - AfDB: 642 — 4.0
    - EIB: 250 — 1.6
    - Others: 202 — 1.2
  - RBZ External Debt: 530 — 3.3
  - Private Debtors: 2,117 — 13.1
  - Total External Debt: 9,348 — 58.0
- Central government domestic debt as of end-2016 (U.S. dollars million):
  - Government Financing Debt: 1,569
  - Capitalization: 611
  - RBZ Capitalization and Debt: 720
  - Suppliers Arrears: 164
  - RBZ Overdraft Facility: 942
  - Total Domestic Debt: 4,006
- PV of public-sector debt-to-GDP ratio projected to increase from 67 percent in 2016 to 80 percent in 2027.

### STRESS TESTS AND ALTERNATIVE SCENARIOS
- Stress tests suggest a worsening of all debt burden indicators; any scenario based on historical key variables leads to explosive debt levels and unsustainability.
- Historic-averages stress test results (by 2027):
  - PV of external debt-to-GDP ratio could reach 125 percent.
  - PV of external debt-to-exports ratio could reach 654 percent.
- Broader public sector potential liabilities:
  - Local governments’ debt estimated at $555 million in 2015 (3.4 percent of GDP).
  - Debt of nonfinancial public corporations around $440 million as of end-2016 (2.7 percent of GDP).
  - Contingent liabilities from transport projects estimated at just under $1 billion (6.2 percent of GDP).
  - Illustrative addition of these obligations to central government stock in 2017 would increase the PV of public debt-to-GDP ratio by 12 percentage points to 82 percent; without adjustment the gap with the baseline would widen to 22 percent over the projection period.

### CONCLUSION
- Zimbabwe is in debt distress.
- Excessive external debt, substantial arrears, and significant domestic debt have undermined private sector competitiveness.
- Debt indicators are not projected to improve much under current policies and are estimated to worsen under various shock scenarios.

*Prepared by the staffs of the International Monetary Fund and the International Development Association June 19, 2017*

### 14. The adoption of an ambitious set of policies is essential if Zimbabwe is to emerge

### 14. The adoption of an ambitious set of policies is essential if Zimbabwe is to emerge

### Key message and policy recommendations
- Sharp fiscal adjustment and bold structural reforms are necessary to restore growth and attract investment.
- External support and debt relief from the international community must be part of the strategy.
- Supported by a robust reform program, the envisaged reengagement process could bear fruit and restore growth and sustainability.

### Debt and financing findings (baseline and diagnostic)
- External debt (nominal) series (selected years and averages):
  - 2014: 56.0
  - 2015: 54.3
  - 2016: 58.0
  - 2017: 55.3
  - 2017-22 Average: 48.7
  - 2023-37 Average: 43.0
- Public and publicly guaranteed (PPG) share in external debt (selected years):
  - 2014: 40.5
  - 2015: 41.1
  - 2016: 44.8
  - 2017: 44.7
  - 2017-22 Average: 35.8
  - 2023-37 Average: 34.6
- Change in external debt (selected years):
  - 2014: 8.4
  - 2015: -1.7
  - 2016: 3.7
  - 2017: -2.7
- Identified net debt-creating flows (selected years):
  - 2014: 10.3
  - 2015: 6.0
  - 2016: 1.8
  - 2017: 1.3
  - 2017-22 Average: 1.4
  - 2023-37 Average: 1.8
- Non-interest current account deficit (selected years and averages):
  - 2014: 13.6
  - 2015: 8.0
  - 2016: 2.8
  - 2017: 15.4
  - 2017-22 Average: 0.4
  - 2023-37 Average: 0.3
- Exports and imports (percent of GDP, selected series):
  - Exports: 2014: 24.3; 2017-22 Average: 19.1; 2023-37 Average: 18.2
  - Imports: 2014: 47.7; 2017-22 Average: 25.3; 2023-37 Average: 23.9
- Net FDI (negative = inflow) (selected years/averages):
  - 2014: -3.0
  - 2015: -2.5
  - 2016: -2.1
  - 2017: -2.3
  - 2017-22 Average: -0.6
  - 2023-37 Average: -0.5
- PV of external debt (selected projection values):
  - 2027: 41.6
  - 2037: 40.5
- PV of PPG external debt (selected projection values and ratios):
  - 2027 (PV of PPG external debt): 34.1 (in percent of exports: 176.3; in percent of government revenues: 170.7)
  - 2037 (in percent of government revenues): 148.7

### Debt-service and financing needs
- Debt service-to-exports ratio (selected historical and projected):
  - 2014: 10.1
  - 2015: 9.4
  - 2016: 11.3
  - 2017: 11.5
  - 2027: 20.0
  - 2037: (table shows rising stress; see projections)
- PPG debt service-to-exports ratio (selected values):
  - 2014: 3.7
  - 2017: 6.4
  - 2027: 10.0
  - 2037: 15.6
- PPG debt service-to-revenue ratio (selected values):
  - 2014: 3.7
  - 2017: 7.1
  - 2027: 9.2
  - 2037: 13.2
- Total gross financing need (Millions of U.S. dollars, selected years):
  - 2014: 3390.6
  - 2015: 2317.7
  - 2016: 1076.3
  - 2017: 1203.9
  - 2027: 1932.3

### Key macroeconomic assumptions (baseline projections)
- Real GDP growth (in percent, selected years and averages):
  - 2014: 2.8
  - 2015: 1.4
  - 2016: 0.7
  - 2017: 7.9
  - 2018: 6.9
  - 2019: 2.8
  - 2020: 0.8
  - 2021: 0.3
  - 2022: -0.3
  - 2017-22 Average: -0.7
  - 2023-37 Average: 0.3
  - Projection steady values: 2.0, 2.0, 2.0 (listed under assumptions)
- GDP deflator in US dollar terms (change in percent, selected series):
  - 2014: 1.2
  - 2015: 0.1
  - 2016: -0.3
  - 2017: 1.9
  - 2018: 1.7
  - 2019: 3.2
  - 2020: 9.6
  - 2021: 8.7
  - 2022: 4.3
  - Projection long-run: 2.0, 2.0, 2.0
- Effective interest rate (percent) (selected series):
  - 2014: 3.3
  - 2015: 2.3
  - 2016: 2.4
  - 2017: 2.5
  - 2027: 3.5
  - 2037: 3.9
- Growth of exports of G&S (US dollar terms, percent, selected):
  - 2014: -6.3
  - 2015: 1.3
  - 2016: 2.4
  - 2017: 16.1
  - 2018: 37.4
  - 2019: 3.0
  - 2020: 4.0
  - 2021: 4.7
- Growth of imports of G&S (US dollar terms, percent, selected):
  - 2014: -5.6
  - 2015: -8.7
  - 2016: -13.2
  - 2017: 0.9
  - 2018: 20.2
  - 2019: 0.4
  - 2020: -4.7
  - 2021: 2.1
- Grant element of new public sector borrowing (percent, selected years):
  - 2019: 2.2
  - 2020: 8.6
  - 2021: 8.0
  - 2022: 6.2
  - 2027: 2.4
  - 2037: 2.1
- Government revenues (excluding grants, percent of GDP, selected series):
  - 2014: 23.8
  - 2015: 24.3
  - 2016: 21.7
  - 2017: 21.7
  - 2017-22 Average: 20.9
  - 2023-37 Average: 21.5
- Aid flows (Millions of US dollars) and grants/concessional loans:
  - Aid flows and their decomposition are reported as 0.0 for historical and near-term projections in the table.

### Public sector debt metrics (baseline)
- Public sector debt (percent of GDP, selected):
  - 2014: 51.6
  - 2015: 55.3
  - 2016: 69.7
  - 2017: 72.9
  - 2017-22 Average: 77.4
  - 2027: 81.6
  - 2037: 81.1
- PV of public sector debt (selected projected values):
  - 2017-22 Average: 68.7
  - 2027: 79.9
  - 2037: 78.5
- Gross financing need (percent of GDP, selected projection values):
  - 2017: 13.2
  - 2018: 12.5
  - 2019: 12.6
  - 2020: 13.4
  - 2027: 16.3
  - 2037: 16.4
- PV of public sector debt-to-revenue and grants ratio (percent, selected):
  - 2017-22 Average: 329.9
  - 2027: 383.2
  - 2037: 364.5
- Debt service-to-revenue and grants ratio (percent, selected):
  - 2014: 4.4
  - 2015: 5.6
  - 2016: 9.2
  - 2017: 11.4
  - 2027: 19.9
  - 2037: 24.0

### Sensitivity analysis and stress tests (selected outcomes)
- Indicators under alternative scenarios and bound tests show large variations in PV of debt ratios, debt-service ratios, and vulnerabilities. Selected highlights from Table 5a / 5b and Table 7:
  - PV of debt-to-GDP ratio (baseline and scenarios, percent):
    - Baseline 2017: 42
    - A1 (historical averages) 2017: 42
    - B6 (one-time 30 percent nominal depreciation in 2018) 2017: 42; later years show increases under shocks.
  - PV of debt-to-exports ratio (baseline and stress scenarios, percent):
    - Baseline 2017: 175
    - A1 (historical averages) 2017: 175
    - B6 (one-time 30 percent nominal depreciation) 2018: 174 (and higher in following years)
  - PV of debt-to-revenue ratio (baseline and scenarios, percent):
    - Baseline 2017: 194
    - A1 2017: 194
    - B6 2018: 194 (with substantial increases under some shocks)
  - Public sector PV of Debt-to-GDP Ratio (Table 7, selected years, percent):
    - Baseline 2017: 70
    - A1 (Real GDP growth and primary balance at historical averages) 2037: 36
    - A2 (Primary balance unchanged from 2017) 2037: 165
    - A3 (Permanently lower GDP growth) 2037: 196
    - A4 (including Local and SOE Debts) 2037: 101
  - PV of Debt-to-Revenue Ratio (Table 7, selected):
    - Baseline 2017: 324
    - A1 2037: 168
    - A2 2037: 768
    - A3 2037: 911
    - A4 2037: 470
  - Debt Service-to-Revenue Ratio (Table 7, selected):
    - Baseline 2017: 11
    - A2 2037: 56
    - A3 2037: 62
    - A4 2037: 40
    - B4 (one-time 30 percent real depreciation in 2018) shows sharp increases across debt indicators (e.g., PV of Debt-to-GDP and debt service ratios).

### Scenarios and interpretation
- The analysis considers:
  - Baseline and historical scenarios.
  - Alternative scenarios: A1 (key variables at their historical averages), A2 (new public sector loans on less favorable terms), A4 (including Local and SOE Debts).
  - Bound tests: B1–B6 including shocks to real GDP growth, export values, US dollar GDP deflator, net non-debt creating flows, combinations of shocks, and a one-time 30 percent nominal depreciation in 2018.
- The most extreme stress test for individual indicators is defined as the test that yields the highest ratio on or before 2027 (e.g., one-time depreciation shock, Exports shock, or combinations as noted per figure descriptions).

*Statement by Mr. Mkwezalamba, Executive Director and Mr. Nakunyada Advisor to the Executive Director, on Zimbabwe, July 5, 2017.*

### Introduction

### Introduction

### Recent Economic Developments and Outlook
- Economic growth slowed from 1.1 percent in 2015 to 0.7 percent in 2016 due to low commodity prices, tight liquidity conditions, limited offshore financing, and successive droughts.
- Authorities project real GDP growth will rebound to 3.7 percent in 2017, supported by a favourable agricultural season and positive spill-over effects on the agro-processing industry.
- Partial recovery in commodity prices is expected to enhance the viability of mining operations and improve output.
- Growth prospects are subject to downside risks from fiscal imbalances, persistent liquidity constraints, and susceptibility to weather-related shocks.
- Inflation turned positive in 2017 after a prolonged episode of negative inflation; year on year inflation rose from -0.7% in January 2017 to 0.75% in May 2017.
- Reserve Bank of Zimbabwe (RBZ) restraint in issuing bond notes and accompanying liquidity constraints have moderated exchange rate pass-through and helped stabilize inflation within single digit levels.
- Export recovery and import compression improved the external sector: firmer commodity prices and increased artisanal gold, chrome, and tobacco production spurred export recovery in 2016; import controls introduced in 2016 compressed imports and improved current account performance.
- External sector performance remains exposed to risks from import dependence, commodity price shocks, subdued capital inflows, and reserve inadequacy.

### Fiscal Policy and Public Financial Management Reforms
- Fiscal position deteriorated largely due to depressed revenues and elevated expenditures; deterioration in terms of trade and economic slowdown amplified revenue shortfalls.
- Extra-budgetary expenditures related to grain imports (necessitated by drought) and elevated employment costs increased government expenditures in 2015 and 2016.
- Authorities are prioritizing expenditure rationalization and revenue-enhancing measures to place the fiscal deficit on a sustainable trajectory.
- Expenditure containment measures instituted: freezing and abolishment of non-essential posts while protecting critical hiring in education and health; elimination of duplications and redundancies in the civil service; tightened employment controls.
- Government provided targeted support to maize farmers to ensure food self-sufficiency and avoid unbudgeted drought-related food import bills; interim financing to maize producers is envisaged to gradually decline as private sector participation increases.
- Expected fiscal improvement as government intervention in the agricultural sector declines.
- Tax efficiency and administration improvements: VAT system of recording taxable transactions closed loopholes and enhanced revenue collection, particularly from the retail sector.
- Zimbabwe Revenue Authority (ZIMRA) introduced an electronic cargo tracking system in early 2017 to enhance clearance and transit cargo management and significantly reduce transit fraud.
- Revenue collections exceeded targeted levels in the first quarter of 2017.
- Progress in Public Financial Management (PFM) reforms to strengthen regulatory framework and government financial oversight of public entities; roll-out of the PFM system from provincial to district level for all ministries by the end of 2017.

### Debt Management
- Limited progress toward clearance of arrears to multilateral creditors.
- In line with the arrears clearance plan presented in Lima in October 2015, the authorities cleared their PRGT obligations in October 2016, resulting in the lifting of remedial measures by the Fund.
- Continued discussions with the World Bank and the African Development Bank to settle debt arrears and advance re-engagement.
- World Bank conducted a TA mission in early 2017 to assess competitiveness of the country’s sources of finance; authorities await feedback on potential reflows unlocked once arrears are cleared.
- Resolution of outstanding issues is expected to provide substantial impetus for amicable resolution of debt obligations and to set the reform agenda on a sound footing.

### Financial Sector Policy Measures
- Financial sector characterized by well capitalized and profitable banks.
- Non-performing loans (NPLs) declined from 20.5 percent in 2015 to 7.9 percent in 2016 following establishment of Zimbabwe Asset Management Company (ZAMCO) to acquire collateralized NPLs from banks.
- Operationalisation of a credit reference system in January 2017 is expected to nurture a credit culture and improve credit risk management.
- Advanced stage of establishing a collateral registry to allow acceptance of movable assets as collateral and promote access to credit by households, large corporates, and SMEs.
- Measures consistent with Basel II requirements taken to mitigate operational and market risks and strengthen management and governance.
- RBZ progress in enhancing macro-prudential tools within Basel III context; authorities expect to finalize the macro-prudential framework by the end of 2017 to improve assessment of financial system stability.
- Banking Amendment Act of May 2016 provides for a comprehensive regulatory framework on corporate governance and risk management within institutions, consumer protection, and problem bank resolution.
- RBZ established the Multi-Disciplinary Financial Stability Committee in 2016 comprising all financial regulators to identify emerging vulnerabilities and recommend proactive policy measures.
- National Financial Inclusion Strategy launched in 2016 to improve access to financial services and mainstream financially excluded segments via tailored financing for SMEs, women, small holder farmers, and the youth.
- Authorities monitor financial sector developments for vulnerabilities from fiscal imbalances; banks are investing in discounting treasury bills (T-Bills) to convert NPLs into income-generating assets despite associated risks.
- Authorities view ample capital buffers as important to cushion banks from unrealized losses associated with discounting of government T-Bills.

### Import Management Measures
- Regulation of selected commercial imports is a temporary measure to help resuscitate domestic industrial production.
- Restrictions on selected products imposed to protect domestic industry from competition by low cost producers and to reverse de-industrialization effects of the hyperinflationary era.
- Measures are intended to be lifted once domestic industries complete recapitalization and retooling, with adherence to regional trade commitments thereafter.
- Banks increased allocation of scarce foreign exchange to all sectors following improved foreign exchange inflows from the first quarter of 2017.

### Structural Reform Measures
- Authorities pressing ahead with structural reforms, subject to resource constraints, aimed at enhancing investment appeal with focus on ease of doing business reforms.
- Policy actions to reduce cost of doing business intended to reduce real exchange rate overvaluation and improve competitiveness in the absence of full monetary autonomy.
- Reported reductions in turnaround times: starting a business from 90 to 15 days; approval of construction permits from 448 to 120 days; property registration from 36 to 14 days.
- Establishment of the One Stop Investment Shop being finalized to streamline routine investment procedures and expedite approvals.
- Completion of projects to expand hydropower generation capacity and improve the road network to support cross-border trade expected to reduce cost of doing business.
- Special Economic Zones Bill passed into law in 2016 to boost foreign direct investment and promote diversification; zones offer flexible labor laws and simplified procedures for residence and work permits.
- Government gazetted 13 Bills to guide liquidation of unviable firms, ensure amicable resolution of commercial disputes, modernize procurement, allow electronic management of the Deeds registry, and streamline licensing procedures.
- Authorities finalizing turnaround, growth, and transformation strategies for state owned enterprises (SOEs) to improve viability, reduce budget burden, and enhance accountability and service delivery.
- Cabinet approved the draft Public Sector Governance Bill to promote corporate governance, ethical leadership, professionalism, and accountability in public institutions; World Bank technical support to help develop accompanying regulations.

### Conclusion
- Zimbabwean authorities value Fund advice and agree on the need to accelerate reform implementation.
- Lack of access to external financing has constrained the pace of reforms.
- Authorities prioritize initiatives to clear debt arrears and advance re-engagement with development partners to support the reform agenda.
- Authorities seek continued close collaboration with the Fund to strengthen policies and unlock external support.

*IMF staff summary: Introduction (cr17196).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17196.pdf_