## _cr04297

## Source details

**Canonical URL:** [_cr04297](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04297.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04297.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04297.pdf.json)

---

### Executive summary — key economic and social findings
- Real GDP fell by some 30 percent over the last 5 years, and another decline of 4-5 percent is projected this year.
- Real GDP declined by 9.3 percent in 2003, with agriculture, mining, manufacturing, and tourism the most affected sectors.
- Inflation doubled in each of the last 3 years and reached 600 percent at end-2003.
- One in four adults is HIV-positive.
- Over 6 million people (½ of the total population) were in need of food assistance in early 2004.
- Cereal production rose by 1/3 in the crop year ending in 2003 but remained less than half of average production during 1997/98-2001/02.
- Recorded exports and imports declined in 2003; real consumption contracted and investment remained at very low levels.
- Concerns about governance, the rule of law, human rights, and lack of clarity about property rights have discouraged investment, promoted capital flight and emigration, and weakened confidence.

### Fiscal developments and outlook
- Fiscal operations moved from a deficit of 3 percent of GDP in 2002 to virtual balance in 2003.
- Revenue declined by 1.5 percentage point of GDP in 2003.
- Government domestic debt fell by 2/3 to 10 percent of GDP at end-2003.
- Quasi-fiscal operations were limited in 2003 to exchange rate subsidies for government operations amounting to 0.6 percent of GDP.
- The 2004 budget appears expansionary, with a deficit target of over 7 percent of GDP.
- The 2004 budget includes the introduction of VAT in January and a new levy on petroleum products; a February decision to move customs valuation to the tender exchange rate is expected to provide a windfall gain of about 1 percentage point of GDP.
- Budget execution in Q1 2004 resulted in a deficit of 13.4 percent of quarterly GDP, driven by front-loading of a budgeted wage increase (220 percent) in January and high non-wage outlays; an arbitrator awarded another 50 percent wage increase to the public sector in May, retroactive to January.
- The budget assumes year-on-year inflation would decline to 175 percent by December 2004, with average inflation increasing to 580 percent.

### Monetary, exchange rate, and financial sector developments
- Loose monetary policy in 2003 provided credit to the private sector at very low nominal interest rates and accommodated inflationary pressures.
- Broad money growth accelerated throughout 2003, spearheaded by an expansion in private sector credit.
- Dual-interest rate policy allocated credit to “productive sectors” at highly negative real interest rates while other credit faced market-determined rates.
- The parallel foreign exchange market depreciated rapidly in 2003; a managed foreign exchange tender was introduced in early 2004 and 25 percent of export earnings must be surrendered at Z$824/US$ for government use.
- RBZ tightened monetary conditions in December 2003, curtailing access by banks to RBZ liquidity support and driving up interbank rates.
- Early 2004 RBZ injections included:
  - Productive Sector Finance Facility (PSFF) at 30 percent, and
  - Troubled Bank Fund (TBF) with effective interest rates ranging from 800 to 1,150 percent.
- RBZ issued mop-up paper at effective interest rates of over 900 percent while continuing PSFF.
- Managed foreign exchange tender and clamp-down on parallel market led to appreciation of the average exchange rate and sharp curtailment of parallel market transactions.
- Banking system "weathered the economic crisis reasonably well" overall, but mission urged close monitoring of impact of tighter monetary conditions.

### Food security and social conditions
- Severe food shortages necessitated massive food imports and donor assistance.
- World Food Program and partners unable to provide food aid to all in need because donor response insufficient.
- Urban food security became a growing problem; WFP does not target urban households and few government support programs exist in urban areas.
- Most observers expect cereal gap to persist beyond March 2004.
- Ministry of Agriculture estimated current cereal crop at 2.8 million tons and prepared for large-scale grain imports (600,000-700,000 tons) from mid-2004.
- Prices rose much faster than incomes, real wages and formal sector employment fell sharply; social conditions are dire.

### Policy thrust and mission recommendations
- Mission thrust: arrest the economic decline and restart growth.
- Recommended policy actions included:
  - stronger, sustained action on fiscal, monetary, and exchange rate policies;
  - close monitoring of impact of tighter monetary conditions on banking sector;
  - preservation of social spending while implementing fiscal tightening;
  - implementation of structural reforms to increase productivity economy-wide, particularly in agriculture, including addressing land reform and property rights.
- Authorities broadly agreed with the assessment but differed on timing and specifics:
  - favored short-run export incentives via ad-hoc support schemes rather than full exchange rate adjustment;
  - considered dual interest rate policy still needed to support production;
  - indicated no immediate intention to revise the 2004 budget, nor to dismantle the Grain Marketing Board (GMB) monopoly;
  - have yet to fundamentally address problems resulting from land reform implementation.

### Political and international context
- Political tensions increased: reported fraud and political violence in local elections; imposition of centrally appointed governors in cities with elected opposition mayors; treason trial of MDC leader Tsvangirai continued; the only daily independent newspaper was shut down in September 2003.
- Amendments to the electoral act in March 2004 granted greater powers to the registrar general and provided compulsory “voter education”; authorities rejected a UNDP proposal to help finance and monitor the March 2005 general elections.
- International relations deteriorated: US and EU renewed and extended targeted sanctions; Zimbabwe withdrew from the Commonwealth in December 2003; donor support limited to humanitarian assistance.

### Box 2 — Monetary Policy Statements: targets, measures, assessment
- Authorities target reduction in inflation (end of year) from 600 percent in 2003 to 200 percent in 2004.
- Inflation noted elsewhere:
  - Monthly inflation rate declined to 5 percent in April 2004, from a peak of 34 percent in November 2003.
  - Year-on-year inflation decreased to 505 percent.
- December 2003 RBZ/regulatory measures:
  - Reserve requirements increased from 20 to 30 percent for commercial and merchant banks and from 5 to 15 percent for finance houses (effective January 2004).
  - Strengthened prudential supervision; bank licensing authority transferred from MFED to RBZ.
  - Expanded dual interest rate policy: PSFF at 30 percent for productive sectors.
  - New managed foreign exchange tender auctioned twice weekly; exporters required to surrender 25 percent of gross export receipts to RBZ at official rate of Z$824/US$1 and another 25 percent to the auction; remaining 50 percent retained in FCAs for up to 21 days.
  - New capital requirements (Basel II) as of September 30, 2004: minimum capital requirement increased from Z$500 million to Z$10 billion (about US$1.6 million at the end-03 parallel market rate).
- April 2004 measures:
  - Export incentives: guaranteed floor rate of Z$5,200/US$ for exporters at the tender; enhanced tax credits for 15 percent of exports; concessional credit for 90-day post shipment foreign currency bills at LIBOR+5 percent.
  - Transfers through licensed Money Transfer Agencies guaranteed the higher of tender rate or Z$5,200/US$1.
  - PSFF capped at Z$1.5 trillion, extended from mid- to end-2004 (mid-2005 for exporters ~1/3 of facility); interest rate to be raised to 50 percent in mid-year.
  - New concessional facility Z$165 billion for parastatals and local government.
  - RBZ to offer overnight accommodation at effective interest rate of “10-20 percent above inflation.”
  - Gold and tobacco subsidy schemes: gold support price Z$71,000/g; tobacco subsidy Z$750/kg.
  - Strengthened governance/regulation for banks: majority independent non-executive directors; shareholders >10 percent cannot be part of management or chair the board; fixed assets ratio limit 25 percent.
- Foreign exchange tender observations:
  - Exporters received a blend rate (¼ at surrender rate, ¾ at tender rate) that in April was some 40 percent appreciated from the late-2003 parallel market rate.
  - Tender mechanics introduced multiple currency practices (MCPs); authorities do not intend to remove these MCPs.
  - Inflows into official channels strengthened considerably since late 2003.
- Monetary policy assessment:
  - Dual interest rate policy caused serious distortions: low interest lending contributed to high monetary growth and inflation; no evidence it stimulated aggregate production.
  - Negative real interest rates eroded savings and undermined financial system health; institutional investors required to hold government paper with effective yield of 150 percent.
  - About half of PSFF financed by drawdown in statutory reserves; other half by direct RBZ loans to banking sector.
  - Authorities intended to cap concessional facilities at end-March level of about Z$1.5 trillion and abolish them by year-end; interest rate on these loans raised from 30 to 50 percent (from July 2004) but loans to exporters extended through mid-2005 and new concessional facilities created.
- Mission advice:
  - Monetary policy should focus on taming inflation.
  - Review interest rate structure to reduce toll on banking system and bring government borrowing costs to realistic levels.
  - Monitor provisioning and capital adequacy continuously and enforce prudential norms.
  - Strengthen supervision and resolve nonviable institutions; RBZ indicated need for technical assistance.

### Financial sector indicators and stress tests (end-2003 highlights)
- Banking system size in real terms declined significantly (assets fell by 40 percent in real terms in 2003).
- At end-2003, total assets and deposits of the banking system amounted to roughly 50 and 23 percent of GDP, respectively.
- Nonperforming loan (NPL) ratios are low (less than 5 percent at end-2003).
- Most banks report capital adequacy ratios exceeding the 10 percent requirement.
- Institutional investors faced an effective yield on government paper of 150 percent.
- Stress test results (selected scenarios, All Banks CAR):
  - Actual CAR end-Dec. 2003: 16.2.
  - Scenario 1 (provisioning increases to RBZ-required levels): CAR 15.4; number of banks with CAR<10% 9; their share of system assets 29.7.
  - Scenario 2 (NPLs increase by 50 percent): CAR 14.7; number of banks with CAR<10% 11; share 37.0.
  - Scenario 3 (25 percent of performing loans become NPLs): CAR 8.4; number of banks with CAR<10% 19; share 69.8.
  - Scenario 4 (50 percent of performing loans become NPLs): CAR 0.1; number of banks with CAR<10% 21; share 72.3.
  - Scenario 5 (Z$ depreciates by 80 percent): CAR 15.8; number of banks with CAR<10% 6; share 25.0.
  - Scenario 6 (short-term interest rates +100 percentage points): CAR 14.5; number of banks with CAR<10% 13; share 44.7.
- Mission noted systemic problems in next 6-12 months cannot be ruled out; recapitalization or closure mechanisms needed.

### External accounts, debt, trade policy, and structural constraints
- External current account deficit narrowed from nearly 8 percent of GDP in 2002 to 6 percent in 2003.
- Recorded exports declined by 12 percent; imports declined by 15 percent due to shortage of foreign exchange in official channels.
- In absence of foreign financing or usable reserves, deficit financed by accumulation of arrears, which reached US$2.1 billion, or 44 percent of external debt by year’s end.
- Trade liberalization steps:
  - VAT introduced January 2004 accompanied by abolition of import duty (customs duties and import surtax retained).
  - Fund’s trade restrictiveness index rating dropped from 8 to 6.
  - Intra-regional tariffs reduced by 5-10 percent in January 2004 for about 3,000 tariff lines under SADC Phase II.
  - Ongoing COMESA customs union impact assessment expected by October 2004; COMESA and SADC commitments in conflict.
- Structural constraints:
  - Land reform disruptive: Presidential Review Committee report October 2003 implicitly acknowledged failure to meet FTLRP objectives.
  - Actual resettlement: 134,452 households and 6.4 million ha (fell short of earlier government claims of 350,000 families and 11 million ha).
  - Independent reports estimate unemployed former farm workers and their families at 1 million people (8-9 percent of the population).
  - Weak know-how of new farmers, destruction of infrastructure, uncertainty about property rights, and input shortages lowered productivity and agricultural production.
- Price controls and privatization:
  - Most price controls removed after May 2003; fuel market partially liberalized in August.
  - Civil service reform, enterprise privatizations, and most reforms under the National Economic Revival Program have stalled.
  - GMB monopoly remains and contributed to price distortions, food shortages, discouraged production, prevented private sector imports, and hampered humanitarian assistance.

### Structural reform priorities and recommendations
- Indigenization should be market-based, equitable, transparent, and within a clear legal framework.
- Public enterprise commercialization should proceed to reduce fiscal burden; privatization should be resumed with regulatory changes.
- Remove GMB monopoly and implement better-targeted basic food subsidies.
- Land and property rights:
  - New Land Ministry preparing computerized cadastre; plan to offer 99-year leases or user-permits with no subletting.
  - Authorities indicated intention to eventually nationalize all land, including land protected by bilateral investment agreements.
  - Short-run plan: implement “Designated Farm Scheme” through centrally-supported production of wheat and tobacco.
  - Mission concerns: uncertainty over property rights, poor infrastructure, and non-transferability of leases will likely limit effectiveness and stifle credit access.
- Statistical system deficiencies hamper policy implementation; authorities intend to strengthen statistical office and set up working group between MFED and RBZ.

### Medium-term outlook and illustrative scenarios
- Two illustrative 2004 scenarios: baseline (some adjustments but not rigorous anti-inflation strategy) and adjustment (tightening consistent with staff proposals from May 2004 onwards).
- Both scenarios: inflation would fall from 2003 peak, mostly due to better 2004 results; in baseline decline would be temporary as pent-up import demand released.
- Medium-term baseline assumptions:
  - After March 2005 elections government undertakes more determined anti-inflation policy aligned with adjustment scenario 2004 policies.
  - Loose fiscal policy before elections and release of pent-up pressures in adjustment period would lead to depreciation and initially push inflation up again in 2005.
  - Determined financial tightening (higher interest rates and fiscal primary surpluses) would bring inflation down steadily to double-digit range by 2007.
  - High real interest rate period would not significantly increase domestic debt (equivalent to 10 percent of GDP in 2003), provided new domestic financing requirements remain modest.
  - Credit to private sector would contract significantly in real terms during first year of adjustment.
- With vigorous structural reforms, normal weather, and market-determined exchange rate, real GDP growth of at least 4-5 percent a year could be achieved over the medium term.
- Assumes progress in cooperating with international partners, external support could be restored and external debt restructured in late 2006 under a Paris Club flow rescheduling.
- External debt burden would remain high because exports would recover gradually.

### Medium-term projections (selected highlights)
- Real GDP (market prices; pct change): -9.3 (2003), -5.2 (2004), 1.8 (2005), 4.6 (2006), 4.4 (2007), 4.2 (2008), 4.2 (2009).
- CPI inflation (annual average): 431.7 (2003), 352.6 (2004), 448.0 (2005), 176.3 (2006), 51.7 (2007), 14.2 (2008), 7.8 (2009).
- CPI inflation (end of period): 598.7 (2003), 256.4 (2004), 435.9 (2005), 100.7 (2006), 27.7 (2007), 9.8 (2008), 6.0 (2009).
- 91-day treasury bills (annualized yield; end of period): 60.7 (2003), 200.0 (2004), 425.0 (2005), 120.0 (2006), 30.0 (2007), 15.0 (2008), 8.5 (2009).
- Total external debt (percent of GDP at world prices; end of period): 68.4 (2003), 76.3 (2004), 77.1 (2005), 75.5 (2006), 74.1 (2007), 72.6 (2008), 71.2 (2009).
- Total external arrears (percent of GDP at world prices; end of period): 30.2 (2003), 38.0 (2004), 41.1 (2005), 2.4 (2006), 1.5 (2007), 0.7 (2008), 0.0 (2009).

### External debt sustainability and sensitivity analyses (selected metrics)
- External debt (nominal, percent of GDP): 47.0 (2000), 45.3 (2001), 57.0 (2002), 68.4 (2003), 76.3 (2004), 77.1 (2005), 75.5 (2006), 74.1 (2007), 72.6 (2008), 71.2 (2009).
- NPV of external debt (percent of GDP; selected years): 59.8 (2003), 68.0 (2004), 75.2 (2005), 75.4 (2006), 70.0 (2007), 67.6 (2008), 65.5 (2009).
- NPV of external debt (percent of exports): 285.2 (2003), 341.7 (2004), 395.0 (2005), 391.2 (2006), 365.7 (2007), 358.0 (2008), 345.7 (2009).
- Sensitivity bound test B6 (one-time 30 percent nominal depreciation relative to baseline in 2004) NPV of debt-to-GDP: 99, 97, 88, 83, 78, 74, 67, 48 (selected years).

### Combined scenario (selected balance of payments rows; US$ millions)
- Current account (excluding official transfers): -38 (2000), -497 (2001), -604 (2002), -421 (2003 Est.), -445 (2004 Scenario), -453 (2004 Adjustment Scenario).
- Exports, f.o.b.: 2,200 (2000), 1,575 (2001), 1,398 (2002), 1,225 (2003 Est.), 1,129 (2004 Scenario), 1,293 (2004 Adjustment Scenario).
- Imports, f.o.b.: -1,907 (2000), -1,792 (2001), -1,923 (2002), -1,627 (2003 Est.), -1,550 (2004 Scenario), -1,701 (2004 Adjustment Scenario).
- Overall balance: -136 (2000), -273 (2001), -639 (2002), -574 (2003 Est.), -427 (2004 Scenario), -409 (2004 Adjustment Scenario).
- Gross official reserves (end of period): 25 (2000), 25 (2001), -3 (2002), -6 (2003 Est.), -24 (2004 Scenario).
- External debt: 4,014 (2000), 3,845 (2001), 4,370 (2002), 4,843 (2003 Est.), 5,204 (2004 Scenario).
- Of which: arrears: 404 (2000), 803 (2001), 1,520 (2002), 2,141 (2003 Est.), 2,593 (2004 Scenario).

### HIV/AIDS prevalence, impact, and response
- 1.8 million Zimbabweans were living with HIV, over half of them women.
- 206,000 new HIV infections reported in 2003.
- 174,000 new AIDS cases reported in 2003.
- Total AIDS-related deaths during 2003 estimated to reach 171,300, close to 500 each day.
- Life expectancy declined from around 60 years in 1997 to below 40 years since 2001.
- Zimbabwe had around 800,000 AIDS orphans in 2003.
- About 80 percent of hospital beds occupied for AIDS-related illnesses.
- MOHCW estimates annual cost of ARV treatment (excluding equipment/overheads) at US$260-300.
- Currently 5,000 AIDS patients receive ARV treatment.
- Estimates of people in need of ARV treatment vary from 260,000 to 500,000.
- WHO 3 by 5 program plan: provide ARV treatment to 200,000 patients within next 2 years.
- Chronic food shortages and inadequate nutrition worsen outcomes for AIDS patients.
- Government strategy: National Aids Council (NAC) coordinates efforts; AIDS levy 3 percent surcharge on taxable income introduced in 2000 raised Z$15 billion in 2003.
- Government expected US$14 million from UN Global Fund and applied for another US$80 million.
- Transparent guidelines needed to ensure ARV criteria not driven by political considerations; effectiveness constrained by lack of health professionals and limited resources.

### Public information, Board assessment, and IMF relations
- IMF Executive Board expressed grave concern over sharp economic decline and high inflation; crisis attributed mainly to inappropriate macroeconomic/structural policies, weak financial management, distortionary controls, and disorderly land reform implementation; external factors compounded effects.
- Board urged comprehensive policy package to halt socio-economic deterioration, restore confidence and donor support, and restart sustainable growth.
- Resumption of partial payments by Zimbabwe to the Fund in 2004 noted as positive but insufficient; arrears to the Fund totaled SDR 197 million as of end-April 2004.
- Relations with Fund constrained by arrears; Executive Board will consider compulsory withdrawal of Zimbabwe from the Fund.

### Fiscal update through April/June 2004 (selected points)
- Fiscal deficit widened through April 2004; cumulative deficit over first four months of year of 18 percent of GDP, up from revised 17 percent of GDP in first quarter.
- Zimbabwe made payments in early June 2004 of US$1.5 million to the World Bank and US$1.2 million to the African Development Bank.

### Statistical system assessment and core indicators
- Statistical system deficient: data inadequate, quality deteriorating, data provision to Fund not timely.
- Monetary data: some adequate quality; foreign reserves not reported meaningfully.
- External arrears: not reported systematically.
- National accounts: 2001 national accounts not published until March 2004 and contain inconsistencies.
- No comprehensive unemployment or wages data; informal sector coverage poor.
- Core statistical indicators (as of April 28, 2004) show many series reported with lags; Exchange Rates latest observation 04/26/04; International Reserves latest observation 12/31/03 received 2/23/04; GDP/GNP latest observation 2001 received 04/28/04.
- Participation: Zimbabwe in GDDS project; metadata posted November 2002.

### Technical assistance and World Bank relations (selected)
- Appendix II lists Fund technical assistance since September 1992 across STA, MFD, LEG, FAD (e.g., revise monetary statistics, liberalize foreign exchange, revise Reserve Bank Act, improve budgeting).
- Zimbabwe on World Bank nonaccrual since October 2000; arrears to Bank as of April 27, 2004 amounted to US$275.6 million.
- Resumption of lending contingent on clearance of arrears; Bank engagement limited to technical assistance and analytical work.
- IFC portfolio: US$24.9 million disbursed as of October 2003, concentrated in financial sector.

### Mission staff appraisal — selected policy recommendations
- Fiscal:
  - Decisive fiscal effort required to reduce inflation on sustained basis.
  - Prompt unification of exchange system and removal of ad hoc tax exemptions to strengthen revenue mobilization.
  - Strict control over wage bill and non-essential spending; allow Treasury bill interest rates to rise; protect social and infrastructure outlays including food imports.
- Monetary and financial sector:
  - Tighten monetary policy on a sustained basis to consolidate gains in lowering inflation.
  - Rationalize interest rate structure and phase out concessional lending.
  - Improve short-term liquidity forecasts; strengthen financial sector supervision (provisioning and capital adequacy); prepare to deal with weak/unsound banks.
- Exchange and trade:
  - Unify foreign exchange system; allow exchange rate to respond to market forces; further liberalize trade regime and remove exchange restrictions.
- Food security and GMB:
  - Urgently address structural impediments to food security; remove GMB monopoly; implement well-targeted basic food subsidies.
- Governance and corruption:
  - Address root causes of corruption—price distortions, sector-specific incentive programs, preferential access to cheap foreign exchange.
- Land reform:
  - Clarify ownership rights to raise agricultural production and facilitate credit access.
- External support and arrears:
  - Normalize relations with external creditors and formulate plan for elimination of external payments arrears.
- Statistics:
  - Intensify efforts to address deficiencies in statistical system.

*IMF staff report: Executive Summary, Box 2, structural reform and appendices (content as provided).*

### Executive Summary ......................................................................................................

### Executive Summary

### Key economic and social findings
- Real GDP fell by some 30 percent over the last 5 years, and another decline of 4-5 percent is projected this year.
- Real GDP declined by 9.3 percent in 2003, with agriculture, mining, manufacturing, and tourism the most affected sectors.
- Inflation doubled in each of the last 3 years and reached 600 percent at end-2003.
- One in four adults is HIV-positive.
- Over 6 million people (½ of the total population) were in need of food assistance in early 2004.
- Cereal production rose by 1/3 in the crop year ending in 2003 but remained less than half of average production during 1997/98-2001/02.
- Recorded exports and imports declined in 2003; real consumption contracted and investment remained at very low levels.
- Concerns about governance, the rule of law, human rights, and lack of clarity about property rights have discouraged investment, promoted capital flight and emigration, and weakened confidence.

### Fiscal developments and outlook
- Fiscal operations moved from a deficit of 3 percent of GDP in 2002 to virtual balance in 2003.
- Revenue declined by 1.5 percentage point of GDP in 2003.
- Government domestic debt fell by 2/3 to 10 percent of GDP at end-2003.
- Quasi-fiscal operations were limited in 2003 to exchange rate subsidies for government operations amounting to 0.6 percent of GDP.
- The 2004 budget appears expansionary, with a deficit target of over 7 percent of GDP.
- The 2004 budget includes the introduction of VAT in January and a new levy on petroleum products; a February decision to move customs valuation to the tender exchange rate is expected to provide a windfall gain of about 1 percentage point of GDP.
- Budget execution in Q1 2004 resulted in a deficit of 13.4 percent of quarterly GDP, driven by front-loading of a budgeted wage increase (220 percent) in January and high non-wage outlays; an arbitrator awarded another 50 percent wage increase to the public sector in May, retroactive to January.
- The budget assumes year-on-year inflation would decline to 175 percent by December 2004, with average inflation increasing to 580 percent.

### Monetary, exchange rate, and financial sector developments
- Loose monetary policy in 2003 provided credit to the private sector at very low nominal interest rates and accommodated inflationary pressures.
- Broad money growth accelerated throughout 2003, spearheaded by an expansion in private sector credit.
- The dual-interest rate policy allocated credit to “productive sectors” at highly negative real interest rates while other credit faced market-determined rates.
- The parallel foreign exchange market depreciated rapidly in 2003; a managed foreign exchange tender was introduced in early 2004 and 25 percent of export earnings must be surrendered at Z$824/US$ for government use.
- The Reserve Bank of Zimbabwe (RBZ) tightened monetary conditions in December 2003, measures that curtailed access by banks to RBZ liquidity support and drove up interbank rates.
- In early 2004 the RBZ injected massive liquidity through:
  - a Productive Sector Finance Facility (PSFF) at a concessional rate of 30 percent, and
  - a Troubled Bank Fund (TBF) with interest rates ranging from 800 to 1,150 percent in effective terms.
- The RBZ subsequently issued mop-up paper at effective interest rates of over 900 percent while continuing to provide cheap credit via the PSFF.
- The managed foreign exchange tender and a clamp-down on the parallel market led to an appreciation of the average exchange rate and a sharp curtailment of parallel market transactions.
- Despite stresses in late 2003–early 2004, the banking system as a whole weathered the economic crisis reasonably well, though the mission urged close monitoring of the impact of tighter monetary conditions on the banking sector.

### Food security and social conditions
- Severe food shortages have necessitated massive food imports and donor assistance.
- The World Food Program and partners have not been able to provide food aid to all in need because the donor response has been insufficient.
- Urban food security has become a growing problem; WFP does not target urban households and few government support programs exist in urban areas.
- Most observers expect the cereal gap to persist beyond March 2004 owing to poor prospects for any increase in production above last year’s level.
- The Ministry of Agriculture estimated the current cereal crop at 2.8 million tons and reportedly prepared for large-scale grain imports (600,000-700,000 tons) from mid-2004.
- Prices have risen much faster than incomes, real wages and formal sector employment have fallen sharply, and social conditions are dire.

### Policy discussions, recommendations, and authorities’ positions
- Mission thrust: arrest the economic decline and restart growth.
- Mission recommendations included:
  - stronger, sustained action on fiscal, monetary, and exchange rate policies;
  - close monitoring of the impact of tighter monetary conditions on the banking sector;
  - preservation of social spending while implementing fiscal tightening;
  - implementation of necessary structural reforms to increase productivity economy-wide, particularly in agriculture, including addressing problems related to the land reform program and property rights.
- The mission welcomed steps taken since late 2003, including strengthened supervision of financial institutions, but urged further action.
- Authorities broadly agreed with the mission’s assessment but differed on timing and specifics for financial policies and structural reforms:
  - authorities favored short-run export incentives via ad-hoc support schemes rather than full exchange rate adjustment;
  - they considered the dual interest rate policy still needed to support production;
  - they indicated no immediate intention to revise the 2004 budget, nor to dismantle the Grain Marketing Board (GMB) monopoly;
  - they have yet to fundamentally address problems resulting from implementation of the land reform.

### Political and international context
- Political tensions increased: reported fraud and political violence in local elections; imposition of centrally appointed governors in cities with elected opposition mayors; treason trial of MDC leader Tsvangirai continued; the only daily independent newspaper was shut down in September 2003.
- Amendments to the electoral act in March 2004 granted greater powers to the registrar general and provided compulsory “voter education”; the authorities rejected a UNDP proposal to help finance and monitor the March 2005 general elections.
- International relations deteriorated: the US and the European Union renewed and extended targeted sanctions; Zimbabwe withdrew from the Commonwealth in December 2003 when it was indefinitely suspended; donor support is limited to humanitarian assistance.

*IMF staff report: Executive Summary (content as provided).*

### Box 2. Monetary Policy Statements

### Box 2. Monetary Policy Statements

### Inflation target and overview
- The authorities target a reduction in inflation (end of year) from 600 percent in 2003 to 200 percent in 2004.
- Inflation developments noted elsewhere in the text:
  - Monthly inflation rate declined to 5 percent in April 2004, from a peak of 34 percent in November 2003.
  - Year-on-year inflation decreased to 505 percent.

### December 2003 measures (RBZ and regulatory actions)
- Tightened access to RBZ liquidity support and higher reserve requirements effective January 2004:
  - Reserve requirements were increased from 20 to 30 percent for commercial and merchant banks and from 5 to 15 percent for finance houses.
- Strengthened prudential supervision:
  - Assessing the liquidity position of financial institutions and imposing stringent conditions before providing liquidity support and/or access to electronic clearing.
  - Bank licensing authority was transferred from the MFED to the RBZ.
- Expanded dual interest rate policy:
  - A “Productive Sector Finance Facility” (PSFF) provides credit at 30 percent interest to encourage economic growth, while other credit (for consumption, and real estate) is at market-related rates.
- New heavily managed foreign exchange tender (“auction”) since mid-January 2004:
  - Foreign exchange from surrender requirements, liquidation of FCAs and other sources is auctioned twice weekly by the RBZ.
  - Bids are scanned and bids for non-priority purposes are rejected.
  - Allocations are made at the bidding price starting from the highest accepted bid.
  - Suppliers receive the average rate paid by bidders.
  - Bids are reportedly strongly influenced through moral suasion.
- New surrender requirements for exporters (beginning in early 2004):
  - Exporters have to surrender 25 percent of their gross export receipts to the RBZ at the official rate of Z$824/US$1 and another 25 percent to the “auction.”
  - The remaining 50 percent can be retained in foreign currency accounts (FCAs) for up to 21 days, after which unused foreign exchange has to be surrendered for tender.
- New capital requirements (based on Basel II) for financial institutions as of September 30, 2004:
  - The minimum capital requirement was increased from Z$500 million to Z$10 billion (about US$1.6 million at the end-03 parallel market rate).

### April 2004 measures (export and fiscal incentives, interest rate adjustments)
- New export incentives:
  - (i) a guaranteed floor rate of Z$5,200/US$ for exporters at the foreign exchange tender;
  - (ii) enhanced tax credits for 15 percent of exports;
  - (iii) a new concessional credit facility for 90-day “post shipment foreign currency bills” at LIBOR+5 percent.
- Transfers from Zimbabweans abroad to official channels:
  - Money transfers through licensed Money Transfer Agencies were guaranteed the higher of the prevailing tender rate or the floor rate of Z$5,200/US$1.
- Marginal amendments to the dual interest rate policy:
  - The PSFF is to be capped at Z$1.5 trillion, extended from mid- to end-2004 (mid-2005 for exporters who account for about one-third of the facility), and the interest rate will be raised to 50 percent in mid-year.
  - A new concessional facility (Z$165 billion) will be offered to parastatals and local government.
  - The RBZ will offer overnight accommodation at an effective interest rate of “10-20 percent above inflation.”
- New subsidy schemes for gold and tobacco:
  - A gold support price of Z$71,000/g is available to all producers.
  - A subsidy of Z$750/kg will be paid for all tobacco delivered to the auction floors.
- Strengthened regulation of the financial sector:
  - (i) Boards of banking institutions need to have a majority of independent non-executive directors;
  - (ii) Shareholders with a stake over 10 percent cannot be part of the management of a bank or chair the board;
  - (iii) The ratio of fixed assets to total assets cannot exceed 25 percent.

### Foreign exchange tender, surrender arrangements, and effects
- Exporter effective receipts and tender outcomes:
  - Exporters received a blend rate (¼ at the surrender rate, ¾ at the tender rate) that in April was some 40 percent appreciated from the (parallel market) rate at which most foreign transactions took place in late 2003.
  - After the RBZ’s April Monetary Policy Statement, the tender rate depreciated somewhat through early May.
- Tender mechanics and related practices:
  - The tender auctions foreign exchange twice weekly; successful bidders are allocated starting from the highest accepted bid and suppliers receive the average rate paid by bidders.
  - The new tender system introduced multiple currency practices (MCPs):
    - Rates at which successful bidders are sold foreign exchange at the same tender can differ by more than two percent.
    - The rate used to pay exporters for tendered foreign exchange (weighted average rate at the tender) can differ from the successful bids rates by more than two percent at any tender.
  - The authorities do not intend to remove these MCPs.
- Inflows and official channels:
  - Inflows of foreign exchange into official channels have strengthened considerably since late 2003.

### Monetary policy assessment and concessional facilities
- Dual interest rate policy problems:
  - The current dual interest rate policy has resulted in serious distortions: low interest lending contributed to unduly high rates of monetary growth and inflation, and there is no evidence that such lending stimulated production in the aggregate.
  - Negative real interest rates have eroded savings and undermined the health of the financial system, especially of institutional investors required to hold government paper with an effective yield of 150 percent.
- Concessional lending footprint and adjustments:
  - Sharply expanded lending through concessional facilities in early 2004 had eroded monetary control.
  - About half of the PSFF was financed by a drawdown in statutory reserves, the other half through direct loans from the RBZ to the banking sector.
  - The authorities indicated their intention to cap the concessional facilities at their end-March level of about Z$1.5 trillion (equivalent to two-thirds of outstanding bank credit to the private sector) and to abolish them by the end of the year.
  - Subsequently, the authorities raised the interest rate on these loans from 30 to 50 percent (from July 2004) but extended the loans made to exporters (about ⅓ of the concessional facilities) through mid-2005 and created new concessional facilities.
- Mission advice on monetary focus:
  - Monetary policy should focus more consistently on taming inflation.
  - Review the structure of interest rates to avoid an excessive toll on the banking system and bring prospective borrowing costs for the government to more realistic levels.
  - Monitor provisioning and capital adequacy continuously and enforce prudential norms.

### Financial sector supervision, banking vulnerabilities, and regulatory steps
- RBZ supervisory actions and governance requirements:
  - Transfer of bank licensing authority from the MFED to the RBZ.
  - The mission supported decisive steps taken by the RBZ in recent months and urged the RBZ to resolve the situation of nonviable institutions.
  - The RBZ indicated a need for technical assistance in supervision and enforcement.
- Banking system indicators and vulnerabilities:
  - The size of Zimbabwe’s banking system in real terms declined significantly (assets fell by 40 percent in real terms in 2003).
  - At end-2003, total assets and deposits of the banking system amounted to roughly 50 and 23 percent of GDP, respectively.
  - Nonperforming loan (NPL) ratios are low (less than 5 percent at end-2003).
  - Most banks report capital adequacy ratios exceeding the 10 percent requirement.
  - Profitability largely reflects high interest margins; institutional investors faced an effective yield on government paper of 150 percent.
- Liquidity and potential systemic risks:
  - The tightening of monetary policy in December 2003 caused some liquidity problems.
  - Early 2004 RBZ actions included closing or placing a few small insolvent financial institutions under curatorship; liquidity support provided was large and dear, weakening monetary control.
  - A few other banks continue to have liquidity problems; recapitalization or closure mechanisms are needed.
  - Systemic problems in the banking sector in the next 6-12 months cannot be ruled out.
  - Stress tests indicate the banking system is most vulnerable to credit risk but is practically immune to changes in the exchange rate, as net open positions in foreign exchange are small.
- Corporate governance issues:
  - Lending tends to be concentrated to a few insiders and associated groups of companies; interference of large shareholders with management is common.
  - Recent RBZ steps addressed some problems (see regulatory measures listed under April 2004), but further actions and increased supervisory staffing and training are needed.

### External accounts, trade policy, and structural context
- External current account and arrears:
  - The external current account deficit narrowed from nearly 8 percent of GDP in 2002 to 6 percent in 2003.
  - Recorded exports declined by 12 percent; imports declined by 15 percent due to a critical shortage of foreign exchange in official channels.
  - In the absence of foreign financing or usable reserves, the current account deficit was financed by a further accumulation of arrears, which reached US$2.1 billion, or 44 percent of external debt by year’s end.
- Trade liberalization steps:
  - Introduction of the VAT in January 2004 accompanied by abolition of the import duty, while customs duties and an import surtax on finished goods were retained.
  - The Fund’s trade restrictiveness index rating for Zimbabwe dropped from 8 to 6.
  - Intra-regional tariffs were reduced by 5-10 percent in January 2004 for about 3,000 tariff lines under SADC Phase II.
  - Ongoing COMESA customs union impact assessment expected to be completed by October 2004; Zimbabwe’s COMESA and SADC commitments are in conflict.
- Structural constraints affecting agriculture and growth:
  - Problems relating to the land reform continued to have disruptive effects:
    - Presidential Review Committee report of October 2003 implicitly acknowledged failure to meet FTLRP objectives.
    - Actual resettlement (134,452 households and 6.4 million ha) fell short of earlier government claims (350,000 families and 11 million ha).
    - Independent reports estimate unemployed former farm workers and their families at 1 million people (8-9 percent of the population).
  - Weak know-how of new farmers, destruction of infrastructure, uncertainty about property rights, and input shortages lowered productivity and agricultural production.
- Price controls and privatization progress:
  - Most price controls were removed after May 2003; fuel market was partially liberalized in August.
  - Civil service reform, enterprise privatizations, and most reforms under the National Economic Revival Program have stalled.
  - The monopoly of the GMB remains and has contributed to price distortions, food shortages, discouraged production, prevented private sector imports, and hampered humanitarian assistance.

### Mission policy recommendations and agreed priorities
- Stabilize the economy and restart growth; support RBZ efforts with sustained tightening of financial policies and more determined exchange system action.
- Fiscal policy:
  - Strengthen fiscal policy urgently to assist in bringing down inflation while protecting social spending.
  - Increase the primary surplus rather than allow a deterioration implied by the budget (the budget implied a deterioration in the primary balance by 4 percentage points of GDP from the small surplus achieved in 2003).
  - Enhance fiscal revenue via unification of the exchange system, contemporaneous taxation of profits, removal of ad hoc tax exemptions, and more frequent review of income tax brackets to avoid bracket creep.
  - Contain expenditure while protecting social sectors; rationalize government services, consider outsourcing, limit non-essential spending, resist wage increases beyond budgeted amounts if inflation remains on track; seek early international assistance if the 2004 harvest falls short.
- Monetary policy:
  - Focus monetary policy consistently on taming inflation.
  - Review and rationalize interest rate structures, cap and phase out concessional facilities, and monitor provisioning and capital adequacy continuously.
- Exchange regime and trade:
  - Use the tender mechanism more vigorously, abolish the surrender requirement, eliminate preferential price granted to small gold miners, remove the 21-day limit on FCA use, and allow the parallel foreign exchange market to function as a pressure valve as interim steps to a unified and market-determined exchange rate.
  - Roll back remaining price controls, unduly restrictive regulations, and government intervention to limit rent-seeking and corruption.

*IMF country report text: Box 2. Monetary Policy Statements*

### 26.      Structural reforms are needed to raise productivity throughout the economy.

### Structural reforms are needed to raise productivity throughout the economy.

### Structural reform priorities and market principles
- Government intention to promote indigenization throughout the economy should be based on market mechanisms and implemented in an equitable and fully transparent manner and within a clear and stable legal framework.
- Public enterprise commercialization should proceed to reduce the fiscal burden arising from enterprises’ losses; privatization should be resumed and supported by appropriate regulatory changes.
- Removal of the monopoly of the GMB was urged to correct serious distortions in the grain market; better targeting of basic food subsidies was recommended to limit cost and improve effectiveness. The authorities maintained that the monopoly of the GMB was instrumental in achieving food security and should be maintained.

### Land reform, property rights, and agriculture
- The new Land Ministry is preparing a computerized cadastre of current occupants of agricultural land to detect unwarranted multiple farm ownerships and correct farm sizes considered excessive.
- Authorities plan to offer 99-year leases or user-permits to farmers, with no provisions for subletting.
- Authorities indicated an intention to eventually nationalize all the land, including that protected by bilateral investment agreements.
- Short-run plan: implement a “Designated Farm Scheme” through centrally-supported production of wheat and tobacco.
- Mission concerns:
  - Continued uncertainty regarding property rights and poor infrastructure will likely limit the effectiveness of such schemes.
  - Non-transferability of land leases/user permits will likely stifle credit access by farmers.
  - Staff stressed importance of addressing property rights to restore investor confidence, including observing commitments under bilateral agreements.

### Relations with the Fund and arrears
- Zimbabwe’s arrears preclude access to IMF resources; the Executive Board will consider compulsory withdrawal of Zimbabwe from the Fund.
- Authorities made payments of US$9 million to date in 2004 and renewed undertakings to make further small payments of US$1.5 million to the Fund on a quarterly basis, or more frequently if possible, even though this would not stabilize the stock of arrears.
- Mission urged authorities to demonstrate strengthened cooperation by pursuing sound economic policies to address Zimbabwe’s serious difficulties and lay the basis for regularizing overdue obligations.

### Statistical system deficiencies
- Zimbabwe’s statistical system presents several deficiencies that hamper policy implementation and the surveillance of economic developments.
- Causes identified: insufficient resources devoted to data collection and analysis and high staff turnover.
- Authorities intend to strengthen the statistical office and set up a working group between MFED and RBZ to address these issues.

### Medium-term outlook and illustrative scenarios
- Two illustrative scenarios for 2004 prepared: a baseline scenario (some further policy adjustments in 2004, but without the rigor of a sustainable anti-inflation strategy) and an adjustment scenario (tightening of policies consistent with staff proposals from May 2004 onwards).
- In both scenarios inflation would fall from the record high levels of 2003, mostly due to better results in 2004; in the baseline scenario this decline would be temporary as pent-up import demand would eventually be released.
- Medium-term projections are built on the baseline scenario (Table 7) and assume:
  - After the March 2005 elections the government would undertake a more determined anti-inflation policy, adopting policies similar to those underlying the adjustment scenario projections for 2004.
  - Loose fiscal policy before the elections and release of pent-up pressures in the adjustment period would lead to a depreciation of the exchange rate and initially push inflation up again in 2005.
  - Determined financial tightening through higher interest rates and achievement of fiscal primary surpluses would bring inflation down steadily to the double-digit range by 2007.
  - The associated period of high real interest rates would not significantly increase the domestic debt (equivalent to 10 percent of GDP in 2003), as long as new domestic financing requirements remain modest.
  - Credit to the private sector would contract significantly in real terms during the first year of the adjustment effort, reflecting the impact of high real interest rates.
- Structural reforms and assumptions for stronger medium-term growth:
  - Vigorous implementation of structural reforms, particularly clarification of property rights in agriculture.
  - With normal weather patterns and a market-determined exchange rate, real GDP growth of at least 4-5 percent a year could be achieved over the medium term, reflecting a recovery in agriculture, mining and manufacturing.
  - Assuming progress in cooperating with international partners, international support could be restored and external debt, including arrears, restructured in late 2006 under a Paris Club flow rescheduling.
  - Improved policy framework would unlock external support needed to gradually rebuild foreign exchange reserves and tackle pressing social needs by allowing a gradual loosening of the fiscal stance once inflation is getting under control.
  - The external debt burden would remain high over the medium term because exports would recover only gradually.

### Risks and debt assessment
- Significant short- to medium-term risks:
  - Political constraints could lead to a less comprehensive policy adjustment, prolonging the economic collapse and re-igniting the acceleration of inflation.
  - Even with a comprehensive policy package, substantial resources will be needed to tackle structural issues, particularly rebuilding agricultural production, dealing with the HIV/AIDS pandemic, and addressing the poor state of the health and education system.
  - Considerable time will likely be needed to rebuild domestic and foreign confidence and return the economy to a path of low inflation and sustained growth.
- Illustrative debt assessment exercise (Appendix V):
  - On the basis of projected end-2005 data and hypothetical full use of Paris Club traditional debt relief mechanisms, Zimbabwe’s remaining external debt would far exceed the thresholds that apply under the enhanced HIPC Initiative.
- Footnote: The projections do not take into account the possible need for state-funded recapitalization of banks in case of systemic banking crisis (Box 3).

### Staff appraisal: policy recommendations (selected)
- Fiscal policy:
  - A decisive fiscal effort is required to help reduce inflation on a sustained basis.
  - Prompt unification of the exchange system and removal of ad hoc tax exemptions would strengthen revenue mobilization.
  - Exercise strict control over the wage bill and non-essential spending.
  - Allow Treasury bill interest rates to rise and protect social and infrastructure outlays, including food imports, if necessary.
- Monetary and financial sector policy:
  - Monetary policy should be tightened on a more sustained basis to consolidate gains in lowering inflation.
  - Rationalize the interest rate structure and phase out concessional lending to contain credit demand and provide a positive real return to savers.
  - Improve preparation of short-term liquidity forecasts.
  - Strengthen financial sector supervision, particularly with regard to provisioning and capital adequacy; RBZ should be prepared to deal with weak and unsound banks and reduce systemic risks.
- Exchange and trade policy:
  - Foreign exchange system should be unified to reduce distortions and improve external competitiveness; the exchange rate should be allowed to respond to market forces.
  - Trade regime should be further liberalized and exchange restrictions removed; in the absence of a timetable for removal, staff does not recommend approval of increased multiple currency practices under Article VIII.
- Food security and GMB:
  - Urgently address structural impediments to improve food security.
  - Remove the GMB monopoly and put in place well-targeted basic food subsidies.
- Governance and corruption:
  - Focus on root causes of corruption (price distortions, sector-specific incentive programs, preferential access to cheap foreign exchange) rather than its symptoms.
- Structural reforms to raise productivity:
  - Remove restrictive regulations to bring more activities into the formal economy.
  - Ensure indigenization promotion is market-based, equitable, transparent.
  - Prompt commercialization and eventual privatization of public enterprises, supported by regulatory changes, to reduce fiscal burden and improve service delivery.
- Land reform:
  - Address problems relating to the land reform to halt disruptive effects; clarification of ownership rights is crucial to raising agricultural production and facilitating access to credit for farmers.
- External support and arrears:
  - Resumption of external support requires normalization of relations with external creditors and formulation of a plan for elimination of external payments arrears.
- Statistics:
  - Intensify efforts to address deficiencies in the statistical system that hamper policy implementation and surveillance.

*IMF staff report excerpt: "Structural reforms are needed to raise productivity throughout the economy."*

### 50.      It is proposed that the next Article IV Consultation with Zimbabwe be held on the

### _cr04297 - 50.      It is proposed that the next Article IV Consultation with Zimbabwe be held on the

### Article IV Consultation timing
- It is proposed that the next Article IV Consultation with Zimbabwe be held on the standard 12-month cycle.

### Selected Economic Indicators, 2000-2004 (highlights from Table 1)
- Real GDP (market prices; percentage change): 2000 -7.9; 2001 -2.8; 2002 -11.1; 2003 -9.3; 2004 Baseline Scenario -5.2; Adjustment Scenario -4.2.
- Real per capita GDP (percentage change): 2000 -7.6; 2001 -2.5; 2002 -10.9; 2003 -9.1; 2004 Baseline Scenario -4.9; Adjustment Scenario -4.0.
- Gross national savings (excluding grants, percent of GDP) 1/: 2000 0.4; 2001 -2.8; 2002 -0.7; 2003 -3.0; 2004 Baseline Scenario -4.6; Adjustment Scenario -11.8.
- Gross investment (percent of GDP): 2000 0.9; 2001 2.1; 2002 2.1; 2003 1.9; 2004 Baseline Scenario 3.1; Adjustment Scenario 3.1.
- Consumer price inflation (annual average): 2000 55.9; 2001 76.7; 2002 140.0; 2003 431.7; 2004 Baseline Scenario 352.6; Adjustment Scenario 299.6.
- Consumer price inflation (end of period): 2000 55.2; 2001 112.1; 2002 198.9; 2003 598.7; 2004 Baseline Scenario 256.4; Adjustment Scenario 158.6.
- 91-day treasury bills (annualized yield; end of period): 2000 57.8; 2001 25.9; 2002 26.6; 2003 60.7; 2004 Baseline Scenario 200.0; Adjustment Scenario 310.0.
- Real effective exchange rate (percentage change): 2000 42.7; 2001 47.6; 2002 131.5; 2003 28.7.
- Central government revenue (percent of GDP): 2000 26.7; 2001 24.1; 2002 25.2; 2003 23.7; 2004 Baseline Scenario 25.0; Adjustment Scenario 27.4.
- Central government expenditure and net lending (percent of GDP): 2000 48.3; 2001 33.5; 2002 29.2; 2003 24.0; 2004 Baseline Scenario 34.7; Adjustment Scenario 35.0.
- Interest on central government debt (percent of GDP): 2000 16.1; 2001 9.4; 2002 4.1; 2003 1.2; 2004 Baseline Scenario 8.3; Adjustment Scenario 9.6.
- Overall balance, commitment basis (excluding grants, percent of GDP): 2000 -21.6; 2001 -9.4; 2002 -3.9; 2003 -0.3; 2004 Baseline Scenario -9.7; Adjustment Scenario -7.6.
- Primary balance, excluding grants (percent of GDP): 2000 -5.4; 2001 0.0; 2002 0.2; 2003 0.8; 2004 Baseline Scenario -1.4; Adjustment Scenario 2.0.
- Overall balance, cash basis (including grants, percent of GDP): 2000 -19.7; 2001 -6.8; 2002 -3.1; 2003 -0.2; 2004 Baseline Scenario -7.3; Adjustment Scenario -6.0.
- Domestic financing (including privatization, percent of GDP): 2000 18.8; 2001 6.7; 2002 3.3; 2003 0.2; 2004 Baseline Scenario 7.3; Adjustment Scenario 6.0.
- External financing (percent of GDP): 2000 0.8; 2001 0.1; 2002 -0.1; 2003 0.0; 2004 Baseline Scenario 0.0; Adjustment Scenario 0.0.
- Broad money (M3, percentage change; end of period): 2000 59.9; 2001 102.7; 2002 164.8; 2003 413.5; 2004 Baseline Scenario 252.8; Adjustment Scenario 166.9.
- Domestic credit (percentage change; end of period): 2000 61.5; 2001 80.3; 2002 149.2; 2003 397.6; 2004 Baseline Scenario 240.1; Adjustment Scenario 124.2.
- Export volume (percentage change): 2000 6.3; 2001 -21.1; 2002 -13.9; 2003 -17.3; 2004 Baseline Scenario -11.3; Adjustment Scenario 1.7.
- Import volume (percentage change): 2000 8.5; 2001 -0.9; 2002 4.6; 2003 -21.5; 2004 Baseline Scenario -8.5; Adjustment Scenario 0.4.
- Exports (billions of U.S. dollars): 2000 2.20; 2001 1.58; 2002 1.40; 2003 1.23; 2004 Baseline Scenario 1.13; Adjustment Scenario 1.29.
- Imports (billions of U.S. dollars): 2000 -1.91; 2001 -1.79; 2002 -1.92; 2003 -1.63; 2004 Baseline Scenario -1.55; Adjustment Scenario -1.70.
- Current account balance (excluding official transfers, billions of U.S. dollars): 2000 0.0; 2001 -0.5; 2002 -0.6; 2003 -0.4; 2004 Baseline Scenario -0.4; Adjustment Scenario -0.5.
- Current account balance (In percent of GDP at the official exchange rate) 1/: 2000 -0.5; 2001 -4.8; 2002 -2.8; 2003 -4.8; 2004 Baseline Scenario -7.7; Adjustment Scenario -14.9.
- Overall balance (billions of U.S. dollars): 2000 -0.1; 2001 -0.3; 2002 -0.6; 2003 -0.6; 2004 Baseline Scenario -0.4; Adjustment Scenario -0.4.
- Usable official reserves (millions of U.S. dollars; end of period): 2000 22.1; 2001 20.0; 2002 15.1; 2003 18.3; 2004 Baseline Scenario 24.0; Adjustment Scenario 42.5.
- Official reserves (months of imports of goods and services): 2000 0.1; 2001 0.1; 2002 0.1; 2003 0.1; 2004 Baseline Scenario 0.2; Adjustment Scenario 0.2.
- Total external debt (percent of GDP at world prices; end of period) 2/: 2000 47.0; 2001 45.3; 2002 57.0; 2003 68.4; 2004 Baseline Scenario 76.3; Adjustment Scenario 75.6.
- Total external arrears (percent of GDP at world prices): 2000 4.7; 2001 9.5; 2002 19.8; 2003 30.2; 2004 Baseline Scenario 38.0; Adjustment Scenario 37.7.
- Debt service (percent of exports of goods and services): 2000 22.9; 2001 31.4; 2002 35.1; 2003 35.4; 2004 Baseline Scenario 35.3; Adjustment Scenario 30.8.
- Social indicators: Life expectancy at birth (in years) 2000 39.9; 2001 39.5; 2002 39.0. Infant mortality rate (per 1,000 live births) 2000 73.0; 2001 76.0; 2002 76.0. Adult illiteracy rate (percent of adults ages 15 and above) 2000 11.3; 2001 10.7; 2002 10.0. HIV/AIDS adult infection rate (percent of adults ages 15-49) 2001 24.6.

### Central Government Operations (Table 2 — selected fiscal aggregates)
- Total revenue (percent of GDP): 2000 26.7; 2001 24.1; 2002 25.2; 2003 25.7 (Original Budget); 2003 Est. 23.7; 2004 Baseline Scenario 25.0; Adjustment Scenario 27.4.
- Tax revenue (percent of GDP): 2000 25.0; 2001 22.8; 2002 23.6; 2003 24.5 (Original Budget); 2003 Est. 22.8; 2004 Baseline Scenario 24.1; Adjustment Scenario 26.5.
- Domestic taxes (percent of GDP): 2000 22.4; 2001 19.7; 2002 21.4; 2003 22.9 (Original Budget); 2003 Est. 21.2; 2004 Baseline Scenario 21.4; Adjustment Scenario 22.8.
- Customs duties (percent of GDP): 2000 2.6; 2001 3.1; 2002 2.3; 2003 1.6 (Original Budget); 2003 Est. 1.6; 2004 Baseline Scenario 2.7; Adjustment Scenario 3.7.
- Nontax revenue (percent of GDP): 2000 1.7; 2001 1.3; 2002 1.6; 2003 1.2 (Original Budget); 2003 Est. 0.8; 2004 Baseline Scenario 0.8; Adjustment Scenario 0.8.
- Total expenditure and net lending (percent of GDP): 2000 48.3; 2001 33.5; 2002 29.2; 2003 Budget 37.2; 2003 Est. 24.0; 2004 Baseline Scenario 34.7; Adjustment Scenario 35.0.
- Current expenditure on goods and services (percent of GDP): 2000 24.3; 2001 17.7; 2002 17.9; 2003 Budget 19.8; 2003 Est. 15.9; 2004 Baseline Scenario 18.2; Adjustment Scenario 18.0.
- Wages and salaries (percent of GDP): 2000 18.1; 2001 11.4; 2002 10.3; 2003 Budget 10.5; 2003 Est. 9.1; 2004 Baseline Scenario 11.1; Adjustment Scenario 11.1.
- Interest payments (percent of GDP): 2000 16.1; 2001 9.4; 2002 4.1; 2003 Budget 7.4; 2003 Est. 1.2; 2004 Baseline Scenario 8.3; Adjustment Scenario 9.6.
- Subsidies and transfers (percent of GDP): 2000 6.2; 2001 4.3; 2002 4.6; 2003 Budget 5.1; 2003 Est. 4.1; 2004 Baseline Scenario 4.5; Adjustment Scenario 4.1.
- Capital expenditure (percent of GDP): 2000 0.7; 2001 2.1; 2002 2.1; 2003 Budget 4.7; 2003 Est. 1.9; 2004 Baseline Scenario 3.1; Adjustment Scenario 3.1.
- Budget balance, excl. grants (commitment basis, percent of GDP) 1/: 2000 -21.6; 2001 -9.4; 2002 -3.9; 2003 Budget -11.5; 2003 Est. -0.3; 2004 Baseline Scenario -9.7; Adjustment Scenario -7.6.
- Primary balance (percent of GDP): 2000 -5.4; 2001 0.0; 2002 0.2; 2003 Budget -4.1; 2003 Est. 0.8; 2004 Baseline Scenario -1.4; Adjustment Scenario 2.0.
- Budget balance, incl. grants (cash basis, percent of GDP): 2000 -19.7; 2001 -6.8; 2002 -3.1; 2003 Budget -11.5; 2003 Est. -0.2; 2004 Baseline Scenario -7.3; Adjustment Scenario -6.0.
- Domestic financing (net, percent of GDP): 2000 18.8; 2001 6.7; 2002 3.3; 2003 Budget 13.3; 2003 Est. 0.2; 2004 Baseline Scenario 7.3; Adjustment Scenario 6.0.
- Nominal GDP (in billions of Zimbabwe dollars): 2000 329; 2001 565; 2002 1,205; 2003 2,104; 2004 Baseline Scenario 24,630; 2004 Est. 3,823; 2004 Adjustment Scenario 24,940; 2004 Scenario 22,233.
- Domestic Debt (in percent of GDP): 2000 49.3; 2001 34.4; 2002 28.7; 2004 Baseline Scenario 15.4; Adjustment Scenario 16.5.

### Monetary Survey (Table 3 — selected monetary aggregates)
- Reserve money (levels and changes across 2000-2004 series shown; examples): Reserve money (end-2000) 16.0; Mar. 2001 164.9; Jun. 2001 171.2; Sep. 2001 295.2; Dec. 2001 408.5; 2003 Dec. 394.8; 2004 Baseline Scenario 266.6; Adjustment Scenario 150.9.
- Broad money (M3, annual percentage change): 2000 59.9; 2001 102.7; 2002 164.8; 2003 206.7; 2004 Baseline Scenario 275.8; Adjustment Scenario 418.7; other scenario projections include 413.5; 252.8; 166.9.
- Currency outside banks (levels across periods; examples): 2000 37.3; Mar. 2001 161.1; Jun. 2001 215.8; Sep. 2001 215.8; Dec. 2001 265.5; 2003 Dec. 375.0; 2004 Baseline Scenario 456.0; Adjustment Scenario 218.0; 134.4.
- Deposits (levels across periods; examples): 2000 62.2; Mar. 2001 97.6; Jun. 2001 158.9; Sep. 2001 205.7; Dec. 2001 277.2; 2003 Dec. 424.1; 2004 Baseline Scenario 407.6; Adjustment Scenario 258.1; 171.9.
- Net foreign assets of reserve bank (in various series): examples include 2000 1.8; Mar. 2001 -7.2; Jun. 2001 -3.0; Sep. 2001 -17.1; Dec. 2001 -303.0; 2003 Dec. -153.7; 2004 Baseline Scenario -191.0; Adjustment Scenario -416.4.
- Net domestic assets of reserve bank (examples): 2000 14.2; Mar. 2001 172.1; Jun. 2001 174.2; Sep. 2001 312.2; Dec. 2001 711.5; 2003 Dec. 551.8; 2004 Baseline Scenario 548.5; Adjustment Scenario 457.7; 567.3.
- Private sector credit growth (12 months; percent): 2000 38.1; 2001 68.5; 2002 183.6; 2003 209.6; 2004 Baseline Scenario 256.7; Adjustment Scenario 491.4; later projections include 522.1; 195.7; 73.4.
- CPI inflation (12 months end-of-period; percent): 2000 55.2; 2001 112.1; 2002 198.9; 2003 228.0; 2004 Baseline Scenario 364.5; Adjustment Scenario 455.6; other scenario values reported include 598.7; 256.4; 158.6.

### Monetary authorities and banking system (Table 3 continued — selected memorandum items)
- Net foreign assets of reserve bank (in various series, illustrative): -11.5; -13.0; -14.7; -22.8; -171.4; -209.3; -242.5; -1,644; -3,297.
- Reserve money (levels in some series): 20.6; 54.7; 148.2; 193.8; 261.7; 455.6; 733.5; 2,690; 1,840.
- Deposit money banks: Total deposits (in some series) 108.0; 213.5; 552.4; 782.9; 1,123.2; 2,086.3; 2,799.9; 10,022; 7,606.
- Monetary survey: Net foreign assets (selected): -12.0; -12.3; -12.4; 27.1; -100.7; -74.8; -142.8; -1,325; -2,614. Net domestic assets (selected): 129.6; 250.6; 643.3; 853.8; 1,370.5; 2,400.7; 3,383.1; 12,755; 11,263.
- Broad money (M3, selected levels): 117.6; 238.3; 631.0; 880.9; 1,269.9; 2,325.9; 3,240.3; 11,431; 8,649.

Notes from table sources and footnotes:
- Sources: Zimbabwean authorities; and IMF staff estimates and projections.
- 1/ Reserve Bank of Zimbabwe's net foreign assets and net domestic assets have been adjusted for memorandum of deposits. Includes valuation effects.
- 2/ At an exchange rate of Z$55 per US$1.
- 3/ Credit to the government differs from the fiscal table as it includes accrued interest on domestic government debt, while domestic interest in the fiscal table is recorded as it falls due.

### Financial Soundness Indicators for the Banking Sector, December 2003 (Table 4 — selected ratios)
- Number of banks: All Banks 40; Banks rated “1” 10; Banks rated “2” 14; Banks rated “3” 8; Banks rated “4” or “5” 8.
- Total assets (Z$ billion): All Banks 6,000.6; Banks rated “1” 2,437.9; Banks rated “2” 1,725.6; Banks rated “3” 821.0; Banks rated “4” or “5” 1,016.1.
- Total capital (Z$ billion): All Banks 510.6; Banks rated “1” 295.5; Banks rated “2” 103.9; Banks rated “3” 68.3; Banks rated “4” or “5” 42.9.
- Capital to risk-weighted assets: All Banks 16.2; Banks rated “1” 22.0; Banks rated “2” 13.4; Banks rated “3” 15.3; Banks rated “4” or “5” 7.2.
- Tier I capital to risk-weighted assets: All Banks 13.9; Banks rated “1” 18.3; Banks rated “2” 13.3; Banks rated “3” 12.8; Banks rated “4” or “5” 5.7.
- Capital to assets: All Banks 8.5; Banks rated “1” 12.1; Banks rated “2” 6.0; Banks rated “3” 8.3; Banks rated “4” or “5” 4.2.
- NPLs to gross loans: All Banks 4.7; Banks rated “1” 4.4; Banks rated “2” 5.9; Banks rated “3” 3.4; Banks rated “4” or “5” 3.8.
- Total provisions to NPLs: All Banks 70.1; Banks rated “1” 63.9; Banks rated “2” 79.2; Banks rated “3” 66.8; Banks rated “4” or “5” 63.5.
- NPLs net of specific provisions to capital: All Banks 13.0; Banks rated “1” 9.5; Banks rated “2” 22.4; Banks rated “3” 7.6; Banks rated “4” or “5” 22.1.
- Deposits of government and state enterprises to total deposits: All Banks 7.3; Banks rated “1” 0.6; Banks rated “2” 14.1; Banks rated “3” 0.3; Banks rated “4” or “5” 21.6.
- Return on Asset (ROA) 2/: All Banks 6.7; Banks rated “1” 9.1; Banks rated “2” 5.6; Banks rated “3” 4.5; Banks rated “4” or “5” 4.5.
- Return on Equity (ROE) 2/: All Banks 114.8; Banks rated “1” 111.5; Banks rated “2” 137.7; Banks rated “3” 76.5; Banks rated “4” or “5” 143.0.
- Interest income to noninterest income: All Banks 529.1; Banks rated “1” 351.6; Banks rated “2” 985.4; Banks rated “3” 488.3; Banks rated “4” or “5” 644.6.
- Net interest income to interest expenses: All Banks 65.1; Banks rated “1” 196.5; Banks rated “2” 49.8; Banks rated “3” 26.2; Banks rated “4” or “5” 21.4.
- Noninterest expenses to gross income: All Banks 21.5; Banks rated “1” 31.0; Banks rated “2” 16.7; Banks rated “3” 18.5; Banks rated “4” or “5” 13.1.
- Liquid assets to total assets: All Banks 15.0; Banks rated “1” 17.1; Banks rated “2” 21.8; Banks rated “3” 6.8; Banks rated “4” or “5” 5.0.
- Total (non-interbank) loans to customer deposits: All Banks 66.8; Banks rated “1” 67.0; Banks rated “2” 74.5; Banks rated “3” 43.0; Banks rated “4” or “5” 74.9.
- FX deposits to total deposits: All Banks 5.6; Banks rated “1” 6.1; Banks rated “2” 1.9; Banks rated “3” 16.2; Banks rated “4” or “5” 1.1.
- Net open positions in FX to capital: All Banks -2.6; Banks rated “1” -1.8; Banks rated “2” -5.2; Banks rated “3” -7.0; Banks rated “4” or “5” 4.8.

Footnotes:
- 1/ Ratings refer to CAMEL ratings by the RBZ.
- 2/ ROA and ROE are calculated as a ratio of profit for 2003 to assets and equity, respectively, for end-2003. Given the rate of inflation in 2003, they are likely to be overestimates of the true ROA and ROE by roughly a factor of 2.

### Summary Results of Stress Tests, end-December 2003 (Table 5)
- Actual Capital-to-Risk Weighted Assets Ratios at end-Dec. 2003: All Banks 16.2; Banks rated “1” 22.0; Banks rated “2” 13.4; Banks rated “3” 15.3; Banks rated “4” or “5” 7.2.
- Number of banks with CAR<10% and their share of total system assets (actual): 7 banks; Their share of total system assets 28.1.
- Scenario 1 — Provisioning increases to levels required by the RBZ: All Banks CAR 15.4; Banks rated “1” 20.9; Banks rated “2” 12.8; Banks rated “3” 15.0; Banks rated “4” or “5” 6.9; Number of banks with CAR<10% 9; Their share of total system assets 29.7.
- Scenario 2 — NPLs increase by 50 percent: All Banks CAR 14.7; Banks rated “1” 19.9; Banks rated “2” 11.8; Banks rated “3” 14.8; Banks rated “4” or “5” 6.6; Number of banks with CAR<10% 11; Their share of total system assets 37.0.
- Scenario 3 — 25 percent of performing loans become NPLs: All Banks CAR 8.4; Banks rated “1” 13.3; Banks rated “2” 2.0; Banks rated “3” 11.4; Banks rated “4” or “5” 3.6; Number of banks with CAR<10% 19; Their share of total system assets 69.8.
- Scenario 4 — 50 percent of performing loans become NPLs: All Banks CAR 0.1; Banks rated “1” 4.2; Banks rated “2” -12.0; Banks rated “3” 7.3; Banks rated “4” or “5” 0.0; Number of banks with CAR<10% 21; Their share of total system assets 72.3.
- Scenario 5 — Zimbabwean dollar depreciates by 80 percent: All Banks CAR 15.8; Banks rated “1” 21.7; Banks rated “2” 12.9; Banks rated “3” 14.5; Banks rated “4” or “5” 7.5; Number of banks with CAR<10% 6; Their share of total system assets 25.0.
- Scenario 6 — Increase of short term interest rates of 100 percentage points: All Banks CAR 14.5; Banks rated “1” 16.2; Banks rated “2” 19.5; Banks rated “3” 12.8; Banks rated “4” or “5” 5.3; Number of banks with CAR<10% 13; Their share of total system assets 44.7.

*Source: Zimbabwean authorities; World Bank, World Development Indicators 2003; and staff estimates and projections.*

### 7. Combined scenario

### 7. Combined scenario

### Scenario definition
- Combined scenario includes 25 percent of performing loans becoming NPLs, depreciation of Zimbabwean dollar by 80 percent, and an increase in short-term interest rates by 100 percentage points. 1/

### Balance of payments (selected rows, 2000-2004; US$ millions)
- Current account (excluding official transfers): -38 (2000), -497 (2001), -604 (2002), -421 (2003 Est.), -445 (2004 Scenario), -453 (2004 Adjustmen t Scenario)
- Trade balance: 293 (2000), -217 (2001), -525 (2002), -402 (2003 Est.), -421 (2004 Scenario), -408 (2004 Adjustmen t Scenario)
- Exports, f.o.b.: 2,200 (2000), 1,575 (2001), 1,398 (2002), 1,225 (2003 Est.), 1,129 (2004 Scenario), 1,293 (2004 Adjustmen t Scenario)
- Imports, f.o.b.: -1,907 (2000), -1,792 (2001), -1,923 (2002), -1,627 (2003 Est.), -1,550 (2004 Scenario), -1,701 (2004 Adjustmen t Scenario)
- Private transfers (incl. transfers to nongovernmental organizations): 191 (2000), 249 (2001), 398 (2002), 508 (2003 Est.), 504 (2004 Scenario), 504 (2004 Adjustmen t Scenario)
- Capital account (including official transfers): -227 (2000), -396 (2001), -304 (2002), -256 (2003 Est.), 1745 (2004 Scenario)
- Overall balance: -136 (2000), -273 (2001), -639 (2002), -574 (2003 Est.), -427 (2004 Scenario), -409 (2004 Adjustmen t Scenario)
- Financing: 136 (2000), 273 (2001), 639 (2002), 574 (2003 Est.), 427 (2004 Scenario), 409 (2004 Adjustmen t Scenario)
- Gross official reserves (end of period): 25 (2000), 25 (2001), -3 (2002), -6 (2003 Est.), -24 (2004 Scenario)
- Net use of Fund resources: -70 (2000), -85 (2001), -95 (2002), -65 (2003 Est.), -36 (2004 Scenario), -36 (2004 Adjustmen t Scenario)
- Change in arrears (decrease, -): 281 (2000), 399 (2001), 717 (2002), 762 (2003 Est.), 452 (2004 Scenario), 452 (2004 Adjustmen t Scenario)
- Current account balance (in percent of nominal GDP at world prices): -0.4 (2000), -5.9 (2001), -7.9 (2002), -6.0 (2003 Est.), -6.5 (2004 Scenario), -6.6 (2004 Adjustmen t Scenario)
- Gross official reserves (mem. items): 2/ 3/ 22 (2000), 20 (2001), 15 (2002), 18 (2003 Est.), 24 (2004 Scenario), 42 (2004 Adjustmen t Scenario)
- Net international reserves (reported by RBZ): -400 (2000), -350 (2001), -366 (2002), -411 (2003 Est.), -414 (2004 Scenario), -396 (2004 Adjustmen t Scenario)
- External debt: 4,014 (2000), 3,845 (2001), 4,370 (2002), 4,843 (2003 Est.), 5,204 (2004 Scenario), 5,204 (2004 Adjustmen t Scenario)
- Of which: arrears: 404 (2000), 803 (2001), 1,520 (2002), 2,141 (2003 Est.), 2,593 (2004 Scenario), 2,593 (2004 Adjustmen t Scenario)
- External debt service due: 579 (2000), 572 (2001), 564 (2002), 499 (2003 Est.), 458 (2004 Scenario), 458 (2004 Adjustmen t Scenario)
- Debt service ratio (as a percent of exports of goods and non-factor services): 22.9 (2000), 31.4 (2001), 35.1 (2002), 35.4 (2003 Est.), 35.3 (2004 Scenario), 30.8 (2004 Adjustmen t Scenario)
- Nominal GDP at the official exchange rate (US$ millions): 7,399 (2000), 10,256 (2001), 21,897 (2002), 8,753 (2003 Est.), 5,762 (2004 Scenario), 5,762 (2004 Adjustmen t Scenario)
- Nominal GDP at world prices (US$ millions): 8,542 (2000), 8,485 (2001), 7,662 (2002), 7,081 (2003 Est.), 6,822 (2004 Scenario), 6,887 (2004 Adjustmen t Scenario)

Sources for table: Zimbabwean authorities; and staff estimates and projections. 1/ Includes flows associated with underinvoicing of exports and arrears on short-term private debt. 2/ End of period. 3/ Gold valued at market prices. 4/ Reported by the Reserve Bank of Zimbabwe. 5/ Scheduled medium- and long-term amortization plus all interest payments. 6/ Nominal U.S. dollar GDP adjusted for real growth and international inflation (1996 base year).

### Medium-term outlook highlights (2003-2009 projections; selected series)
- Nominal GDP (Z$ billions): 5,810 (2003 Est.), 24,940 (2004 Proj.), 139,169 (2005 Proj.), 402,320 (2006 Proj.), 636,871 (2007 Proj.), 757,923 (2008 Proj.), 851,028 (2009 Proj.)
- Nominal GDP at the official exchange rate (US$ billions): 8.8 (2003 Est.), 5.8 (2004 Proj.), 3.2 (2005 Proj.), 3.0 (2006 Proj.), 3.3 (2007 Proj.), 3.6 (2008 Proj.), 4.0 (2009 Proj.)
- Nominal GDP at world prices (US$ billions): 7.1 (2003 Est.), 6.8 (2004 Proj.), 7.1 (2005 Proj.), 7.5 (2006 Proj.), 8.0 (2007 Proj.), 8.6 (2008 Proj.), 9.1 (2009 Proj.)
- Real GDP (market prices; pct change): -9.3 (2003), -5.2 (2004), 1.8 (2005), 4.6 (2006), 4.4 (2007), 4.2 (2008), 4.2 (2009)
- Real per capita GDP (percentage change): -9.1 (2003), -4.9 (2004), 1.8 (2005), 4.6 (2006), 4.4 (2007), 4.2 (2008), 4.2 (2009)
- CPI inflation (annual average): 431.7 (2003), 352.6 (2004), 448.0 (2005), 176.3 (2006), 51.7 (2007), 14.2 (2008), 7.8 (2009)
- CPI inflation (end of period): 598.7 (2003), 256.4 (2004), 435.9 (2005), 100.7 (2006), 27.7 (2007), 9.8 (2008), 6.0 (2009)
- 91-day treasury bills (annualized yield; end of period): 60.7 (2003), 200.0 (2004), 425.0 (2005), 120.0 (2006), 30.0 (2007), 15.0 (2008), 8.5 (2009)
- Revenue (percent of GDP): 23.7 (2003), 25.0 (2004), 26.6 (2005), 26.5 (2006), 26.3 (2007), 26.1 (2008), 25.9 (2009)
- Expenditure and net lending (percent of GDP): 24.0 (2003), 34.7 (2004), 37.9 (2005), 34.2 (2006), 33.0 (2007), 32.3 (2008), 31.5 (2009)
- Overall balance, excluding grants and arrears (percent of GDP): -0.3 (2003), -9.7 (2004), -11.3 (2005), -7.7 (2006), -6.7 (2007), -6.2 (2008), -5.5 (2009)
- Total public debt (percent of GDP; end of period): 63.6 (2003), 99.5 (2004), 165.5 (2005), 176.3 (2006), 164.5 (2007), 157.0 (2008), 151.0 (2009)
- Broad money (M3; percent change; end of period): 413.5 (2003), 252.8 (2004), 452.8 (2005), 96.6 (2006), 26.0 (2007), 9.5 (2008), 6.4 (2009)
- Export volume (percent change): -17.3 (2003), -11.3 (2004), 0.5 (2005), 12.1 (2006), 6.4 (2007), 6.4 (2008), 6.0 (2009)
- Import volume (percent change): -21.5 (2003), -8.5 (2004), -4.9 (2005), 2.7 (2006), 4.4 (2007), 4.8 (2008), 5.0 (2009)
- Exports (US$ billions): 1.23 (2003), 1.13 (2004), 1.16 (2005), 1.28 (2006), 1.34 (2007), 1.43 (2008), 1.52 (2009)
- Imports (US$ billions): -1.63 (2003), -1.55 (2004), -1.47 (2005), -1.52 (2006), -1.60 (2007), -1.69 (2008), -1.79 (2009)
- Current account balance (excluding official transfers; US$ billions): -0.42 (2003), -0.44 (2004), -0.41 (2005), -0.34 (2006), -0.32 (2007), -0.32 (2008), -0.32 (2009)
- Current account balance (percent of GDP): -4.8 (2003), -7.7 (2004), -12.8 (2005), -11.1 (2006), -9.6 (2007), -8.9 (2008), -8.1 (2009)
- Official usable reserves (US$ millions, end of period): 18.3 (2003), 24.0 (2004), 23.6 (2005), 136.2 (2006), 279.2 (2007), 434.7 (2008), 616.0 (2009)
- Usable reserves in months of imports of goods and services: 0.1 (2003), 0.2 (2004), 0.1 (2005), 0.8 (2006), 1.6 (2007), 2.4 (2008), 3.3 (2009)
- Total external debt (percent of GDP at world prices; end of period): 68.4 (2003), 76.3 (2004), 77.1 (2005), 75.5 (2006), 74.1 (2007), 72.6 (2008), 71.2 (2009)
- Debt service (percent of exports of goods and services): 35.4 (2003), 35.3 (2004), 30.9 (2005), 26.0 (2006), 22.4 (2007), 20.5 (2008), 18.4 (2009)
- Total external arrears (percent of GDP at world prices; end of period): 30.2 (2003), 38.0 (2004), 41.1 (2005), 2.4 (2006), 1.5 (2007), 0.7 (2008), 0.0 (2009)

Sources: Zimbabwean authorities; and staff estimates and projections. 1/ Foreign currency units are converted into Zimbabwean dollars at the official exchange rate. 2/ GDP at world prices using real GDP growth and trading partner countries' inflation (base year is 1996).

### External debt sustainability (selected metrics, baseline and projections)
- External debt (nominal, percent of GDP): 47.0 (2000), 45.3 (2001), 57.0 (2002), 68.4 (2003), 76.3 (2004), 77.1 (2005), 75.5 (2006), 74.1 (2007), 72.6 (2008), 71.2 (2009)
- o/w public and publicly guaranteed (PPG): 41.2 (2000), 40.9 (2001), 53.6 (2002), 66.1 (2003), 71.1 (2004), 69.8 (2005), 67.4 (2006), 64.6 (2007), 61.9 (2008), 59.6 (2009)
- Change in external debt: -0.8 (2000), -1.7 (2001), 11.7 (2002), 11.4 (2003), 7.9 (2004), 0.8 (2005), -1.5 (2006), -1.5 (2007), -1.5 (2008), -1.4 (2009)
- Identified net debt-creating flows: 3.0 (2000), 6.2 (2001), 12.5 (2002), 11.6 (2003), 9.9 (2004), 3.2 (2005), 0.5 (2006), 0.2 (2007), 0.1 (2008), -0.1 (2009)
- Non-interest current account deficit (negative = surplus): -1.5 (2000), 4.0 (2001), 5.7 (2002), 3.4 (2003), 2.2 (2004), 2.8 (2005), 3.9 (2006), 2.6 (2007), 2.3 (2008), 2.4 (2009)
- Endogenous debt dynamics (contribution to change in debt ratio): 4.7 (2000), 2.2 (2001), 7.0 (2002), 8.3 (2003), 6.3 (2004), 1.4 (2005), -0.9 (2006), -1.1 (2007), -1.1 (2008), -1.0 (2009)
  - Contribution from nominal interest rate: 2.0 (2000), 1.9 (2001), 2.2 (2002), 2.5 (2003), 2.7 (2004), 2.8 (2005), 2.4 (2006), 1.9 (2007), 1.9 (2008), 1.8 (2009)
  - Contribution from real GDP growth: 4.0 (2000), 1.3 (2001), 5.6 (2002), 5.8 (2003), 3.7 (2004), -1.3 (2005), -3.3 (2006), -3.1 (2007), -2.9 (2008), -2.8 (2009)
  - Contribution from price and exchange rate changes: -1.2 (2000), -1.0 (2001), -0.7 (2002)
- NPV of external debt (percent of GDP; selected years): 59.8 (2003), 68.0 (2004), 75.2 (2005), 75.4 (2006), 70.0 (2007), 67.6 (2008), 65.5 (2009), 63.5 (2013), 56.7 (2023)
- NPV of external debt (in percent of exports): 285.2 (2003), 341.7 (2004), 395.0 (2005), 391.2 (2006), 365.7 (2007), 358.0 (2008), 345.7 (2009), 335.7 (2013), 299.3 (2023)
- Debt service-to-exports ratio (in percent): 22.9 (2000), 31.4 (2001), 35.1 (2002), 35.4 (2003), 35.3 (2004), 30.2 (2005), 26.4 (2006), 22.7 (2007), 20.8 (2008), 18.7 (2009)

Notes on methodology and assumptions: staff simulations. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate; and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that NPV of private sector debt is equivalent to its face value. 5/ Current-year interest payments devided by previous period debt stock. 6/ Nominal U.S. dollar GDP adjusted for real growth and international inflation (1996 base year). 7/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

### Sensitivity analyses (selected outcomes, 2004-23; percent)
- Baseline NPV of debt-to-GDP ratio (selected years): 70 (2004), 68 (2005), 62 (2006), 58 (2007), 55 (2008), 52 (2009), 47 (2013), 34 (2023)
- Scenario A1 (key variables at historical averages in 2004-23) NPV of debt-to-GDP: 65, 65, 62, 61, 61, 61, 63, 64 (2004-2013/2023 range)
- Scenario A2 (new public sector loans on less favorable terms in 2004-23) NPV of debt-to-GDP: 70, 68, 68, 65, 62, 60, 60, 58
- Bound test B6 (one-time 30 percent nominal depreciation relative to the baseline in 2004) NPV of debt-to-GDP: 99, 97, 88, 83, 78, 74, 67, 48 (selected years)
- Debt service ratio (baseline): 36 (2004), 35 (2005), 34 (2006), 32 (2007), 30 (2008), 27 (2009), 24 (2013), 17 (2023)
- Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline): 12 (applies to stress scenarios except A2)

Notes on scenario definitions:
- A2 assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline.
- B3 assumes export values remain permanently at the lower level but current account as a share of GDP returns to baseline after the shock (implicitly assuming an offsetting adjustment in import levels).
- Depreciation defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

### Selected economic and financial indicators (figures and social appendix; key datapoints)
- Population: 11.6 million (2002)
- Area: 386,850 sq. km. (2002)
- Density: 30.1 per sq. km. (2002)
- Labor force: 5.9 million (2001)
- Urban population: 36.0 percent (2001)
- HIV incidence (percent of adult population, age 15-49): 24.6 percent (2003)
- Population growth rate (percent): -0.3 (2002)
- Life expectancy at birth (years): 39.0 (2002)
- Infant mortality rate (per thousand): 76.0 (2002)
- Total fertility rate (births per woman): 3.7 (2002)
- Percent of population below total consumption poverty line: 80.0 (2002)
- Percent of population below total food poverty line: 69.0 (2002)
- GNI per capita (US$): 480.0 (2001)
- Health expenditure per capita (current US$): 45.0 (2001)
- Expenditure per student, primary (percent of GDP per capita): 16.2 (2001)

### HIV/AIDS (incidence note)
- Incidence: currently estimated at 24.6 percent of the adult population (aged 15 to 49 years) and reaching 35 percent in some areas. The 2003 HIV/AIDS report, prepared jointly by the Ministry of Health and Child Welfare (MOHCW) and UNAIDS, estimates that some...

*Source: _cr04297 - 7. Combined scenario (IMF staff estimates and projections; Reserve Bank of Zimbabwe data as cited).*

### 1.8 million Zimbabweans were living with HIV, over half of them women. Zimbabwe had around

### _cr04297 - 1.8 million Zimbabweans were living with HIV, over half of them women. Zimbabwe had around

### HIV/AIDS prevalence and mortality
- 1.8 million Zimbabweans were living with HIV, over half of them women.
- 206,000 new HIV infections were reported in 2003.
- 174,000 new AIDS cases were reported in 2003.
- The total number of AIDS-related deaths during 2003 was estimated to reach 171,300, close to 500 each day.
- Life expectancy declined from around 60 years in 1997 to below 40 years since 2001.
- Zimbabwe had around 800,000 AIDS orphans in 2003.

### Impact on the health sector and ARV treatment capacity
- About 80 percent of the hospital beds are occupied for AIDS-related illnesses.
- The MOHCW estimates the annual cost of anti-retro viral (ARV) treatment, excluding equipment and other overheads, at US$260-300.
- Shortage of foreign currency is constraining the availability of ARV drugs.
- Currently 5,000 AIDS patients receive ARV treatment.
- Estimates of people in need of ARV treatment vary from 260,000 to 500,000.
- Under the WHO’s 3 by 5 program, the plan is to provide ARV treatment to 200,000 patients within the next 2 years.
- Given the current state of the health sector and the financing constraints, it is not clear how the target can be achieved.

### HIV/AIDS interaction with food security and agriculture
- Chronic food shortages and inadequate nutritional standards continue to have an adverse impact on the health of AIDS patients and have created a vicious cycle of malnourishment and disease.
- Land reform has displaced more than a million commercial farm workers and consequently worsened food security and the traditional home-based health care services provided on farms.
- As the pandemic has significantly affected the agriculture sector, food insecurity, HIV/AIDS, and low labor productivity are reinforcing each other.

### Government strategy, financing, and implementation constraints
- The government has adopted a multi-sector strategy headed by the National Aids Council (NAC), which coordinates all government treatment, prevention, and impact mitigation efforts.
- Each ministry has assigned focal persons for AIDS to ensure effective communication with the NAC.
- The government runs 21 voluntary counseling and testing (VCT) centers.
- An ARV program started with two centers in Harare and Bulawayo.
- The AIDS levy, a 3 percent surcharge on taxable income, was introduced in 2000 and serves as the main source of funding for the NAC; collections amounted to Z$15 billion in 2003.
- The NAC allocates its fund through 87 District AIDS Councils (DAC) based on their delivery capacities and previous track records.
- The government is expecting US$14 million from the UN Global Fund for AIDS, Tuberculosis, and Malaria, and has applied for another tranche of US$80 million.
- The Global Fund allocation will be used to strengthen education, home-based care, and ARV treatment.
- The report states that transparent guidelines need to be put in place to ensure that the criteria for receiving the ARV treatment are not driven by political considerations.
- The effectiveness of the government’s strategy to combat HIV/AIDS is constrained by a lack of health professionals and limited [resources].

### Relevant Millennium Development Goals indicators (selected figures from Table 2)
- Number of children orphaned by HIV/AIDS: 780,000.
- HIV prevalence (percent ages 15-24): 24.6.
- Prevalence of child malnutrition (percent of children under 5): 11.5 (1990), 15.5 (1995), 13.0 (2001), 5.8 (2015 target).
- Population below minimum level of dietary energy consumption (percent): 43.0 (1990), 44.0 (1995), 39.0 (2001), 21.5 (2015 target).
- Under-five mortality rate (per 1,000): 80.0 (1990), 90.0 (1995), 117.0 (2001), 123.0 (2002), 26.7 (2015 target).
- Immunization against measles (percent of children under 12-months): 87.0 (1990), 87.0 (1995), 68.0 (2001), 58.0 (2002).
- Contraceptive prevalence rate (percent of women ages 15-49): 43.1 (1990), 48.1 (1995), 53.5 (2001).

*Source: IMF staff report text (selected passages reproduced exactly as in the provided content).*

### APPENDIX                                                                        II

### APPENDIX II

### Technical Assistance from the Fund (Since the Inception of the PRGF/EFF Arrangements in September 1992)
- November 1992, STA: Revise monetary statistics. — Revision initiated.
- April 1993, MFD: Liberalize foreign exchange system. — Comprehensive reforms launched; completed in July 1994.
- Spring 1994, LEG: Revise the Reserve Bank Act and the Banking Act. — Completed.
- Spring 1995, FAD: Improve the system of budgeting and public expenditure control. — Initial steps taken.
- Spring 1995, STA: Harmonize the reporting system for monetary statistics. — Harmonization completed.
- Winter 1995, STA: Provide training in balance of payments methodology. — Seminar provided.
- January 1996, STA: Improve foreign trade statistics. — Advice being implemented.
- August 1996, MFD (long term): Strengthen banking supervision. — Some of the advice being implemented.
- October 1996, STA: Improve national accounts. — Some of the advice being implemented.
- January 1996, November 1996, MFD: Improve monetary and foreign exchange operations. — Some of the advice being implemented.
- November 1997, MFD: Improve monetary operations. — Some of the advice being implemented.
- May 1999, MFD: Review and advise on monetary operations, the payments system, and supervision; assess vulnerability of the financial sector. — Report recommendations being reviewed.
- July 2001, MFD: Deposit insurance scheme. — Report recommendations being reviewed.

*Italicized line: Source: APPENDIX II (IMF content provided).*

### Relations with the World Bank Group
- Zimbabwe went on nonaccrual status in October 2000; arrears to the Bank as of April 27, 2004 amounted to US$275.6 million.
- Resumption of lending contingent upon clearance of arrears; scale of reengagement dependent on progress on governance and macroeconomic stability.
- Current Bank engagement limited to technical assistance and analytical work on macroeconomic policy, agriculture policy, social sector expenditure and social service delivery mechanisms, and HIV/AIDS.
- Bank preparing an Interim Strategy Note for the next 12 months focusing on knowledge building, enhancing partnerships with in-country stakeholders, and facilitation of in-country dialogue on priority policy issues in preparation for “re-engagement”.
- Zimbabwe will have access to grant funds through a Trust Fund designated for countries in nonaccrual to support activities discussed in the Interim Strategy Note expected to be presented to the Bank Board in September 2004.
- Bank activities include: co-chairing quarterly donor coordinating meetings in Harare; contributing to UN thematic teams (chairing the Economic and Poverty Reduction Thematic Group); providing technical advice to various UN initiatives (agriculture sector development, food security, and others).
- Currently the Bank does not have any active projects in Zimbabwe.

IFC portfolio:
- IFC’s portfolio totals US$24.9 million disbursed as of October 2003, concentrated in the financial sector.
- IFC priorities: closely monitoring existing portfolio and assisting companies with IFC investment in managing the current economic crisis.
- IFC has provisioned investments substantially in Zimbabwe, in anticipation of losses.

World Bank Loan/Credit Summary for Zimbabwe (in millions of U.S. dollars; as of January 31, 2004)
- Original principal: IBRD 896.20 | IDA 661.95 | TOTAL 1,558.15
- Cancellations: 53.21 | 194.82 | 248.04
- Disbursed: 842.91 | 459.08 | 1,301.99
- Undisbursed: 0.08 | 8.69 | 8.77
- Repaid: 412.81 | 5.31 | 418.12
- Due: 430.10 | 489.88 | 919.98
- Exchange adjustment: 20.99 | 0.00 | 20.99
- Borrower's obligation: 451.09 | 489.88 | 940.97

*Italicized line: Source: APPENDIX III (IMF content provided).*

### Statistical Issues — Summary of Data Quality and Timeliness
- Overall assessment: economic and financial statistics database inadequate; quality deteriorating; data provision to the Fund not timely.
- Monetary data: some adequate quality; foreign reserves not reported in a meaningful fashion by the RBZ.
- External arrears: not reported systematically.
- Budgetary and monetary data: reported to staff with a substantial lag.
- Central Statistical Office (CSO): conducts several sectoral surveys; GDP data reported with substantial lag and major inconsistencies.
- Shortcomings: external trade and finance data; no information available about unemployment and wages.

Participation and capacity:
- Zimbabwe participates in the General Data Dissemination System (GDDS) project for Anglophone African countries; metadata posted November 2002 indicate plans for statistical improvements.
- In absence of technical assistance and funding, progress likely to be slow.

Real sector:
- National accounts: revised national accounts published late 1997 covering 1985-96 with 1990 base year; 2001 national accounts not published until March 2004 and contain inconsistencies.
- Informal sector coverage: poor.
- STA peripatetic advisor in 2001 discontinued due to deteriorating security situation.

Prices, production, labor:
- CSO produces monthly consumer price index; base year changed in 2001 from 1990 to 1995 using 1995-96 household survey weights.
- Manufacturing index reported with 1990 base but with significant lag.
- Employment and wages data: very limited coverage; no longer published.
- No information available on unemployment; comprehensive labor market survey overdue.

Fiscal sector:
- Key weaknesses impair fiscal analysis and policy formulation.
- Monthly revenue and expenditure data for central government available with a lag of 6 to 8 weeks.
- Discrepancies between budget financing need (income/expenditure side) and financing data from banking and other sources.
- Significant part of donor-financed development expenditure off budget.
- Economic classification of expenditure insufficiently disaggregated; functional classification not available.
- Large quasi-fiscal operations by the RBZ and significant contingent liabilities (including loan guarantees) not systematically reported.
- Authorities do not provide Fund staff with budget data according to organizational classification on a regular basis; limited access to source data.
- Operations of social security fund and several self-financing funds under central government not included in reported data.
- Financial operations of public enterprises not reported nor audited regularly; local government accounts available only with multi-year lag.
- Consolidated general government accounts not compiled.
- Latest published data in the Government Finance Statistics (GFS) Yearbook are for 1997.
- No more recent fiscal data provided for publication in International Financial Statistics (IFS).

Financial sector:
- Progress: unified system for reporting monetary statistics to the Fund based on international standards; improved collection and reporting of financial data.
- Ongoing issues:
  - Difficulty reconciling RBZ balance sheet in monetary control program with monetary survey.
  - Accounting for financial bills issued by RBZ emerging as an issue.
  - Timeliness: monetary control program previously available within two weeks; monetary survey within six-eight weeks; delays increased recently to 2-3 months.
  - Deficiencies in reported data: negative figures recorded in central bank accounts for gold (May 2003) and SDR holdings (May, June, and September 2003); negative figures in commercial banks accounts for commercial bank bills payable (October-December 2003).

External sector:
- Pressing need to compile and provide comprehensive external sector data more timely.
- Trade balance in goods reported with lags of more than four-five months despite ASYCUDA providing customs data to CSO within seven days of month end.
- Private remittance inflows significant, but authorities report only remittances through official channels (miniscule).
- Compilation of capital and financial account transactions suffers considerable delays; significant lag in reporting balance of payments to the Fund.
- RBZ provides balance of payments estimates for surveillance but these require substantial adjustments.
- Balance of payments data published in IFS and Balance of Payments Yearbook less timely—the latest data are for 1994; annual data through 2001 provided for publication are of questionable quality.
- Short-term external debt data reported with a one- to two-month lag.
- External debt data (by debtor/creditor) forthcoming only with a considerable lag; terms and maturity profile of external debt not systematically available.
- Authorities provided only partial information on collateralized external borrowing.
- No data available on Zimbabwe’s international investment position.
- Official reserve data not reported in a meaningful manner because of encumbrances on reserves; RBZ occasionally provides data on “usable reserves.”

Sociodemographic data:
- CSO produces sociodemographic statistics on population, health, education services, and poverty indicators, but data often outdated due to infrequent surveys and censuses.

*Italicized line: Source: APPENDIX IV (IMF content provided).*

### Core Statistical Indicators (as of April 28, 2004) — Selected metadata and reporting notes
- Date of latest observation / Date received / Frequency of data / Frequency of reporting / Source of data / Mode of reporting / Confidentiality / Frequency of publication
  - Exchange Rates: Date of latest observation 04/26/04; Date received 04/26/04; Frequency of data D; Frequency of reporting D; Source of data C; Mode of reporting A; Confidentiality C; Frequency of publication D.
  - International Reserves 1/: Date of latest observation 12/31/03; Date received 2/23/04; Frequency of data W; Frequency of reporting W; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication W.
  - Central Bank Balance Sheet: Date of latest observation 02/04; Date received 04/26/04; Frequency of data M; Frequency of reporting M; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication M.
  - Reserve/Base Money: Date of latest observation 02/04; Date received 04/26/04; Frequency of data M; Frequency of reporting M; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication W.
  - Broad Money: Date of latest observation 02/04; Date received 04/26/04; Frequency of data M; Frequency of reporting M; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication M.
  - Interest Rates: Date of latest observation 04/23/04; Date received 04/23/04; Frequency of data D; Frequency of reporting D; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication D.
  - Consumer Price Index: Date of latest observation 03/04; Date received 20/04/04; Frequency of data M; Frequency of reporting M; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication M.
  - Exports/Imports: Date of latest observation 2003; Date received 03/04; Frequency of data A; Frequency of reporting V; Source of data A; Mode of reporting A; Confidentiality C; Frequency of publication V.
  - Current Account Balance: Date of latest observation 2003; Date received 03/04; Frequency of data A; Frequency of reporting V; Source of data A; Mode of reporting A; Confidentiality C; Frequency of publication V.
  - Overall Government Balance 2/: Date of latest observation 02/04; Date received 04/28/04; Frequency of data M; Frequency of reporting M; Source of data A; Mode of reporting C; Confidentiality C; Frequency of publication M.
  - GDP/GNP: Date of latest observation 2001; Date received 04/28/04; Frequency of data A; Frequency of reporting V; Source of data A; Mode of reporting A; Confidentiality C; Frequency of publication V.
  - External Debt/Debt Service 3/: Date of latest observation 2003; Date received 03/04; Frequency of data A; Frequency of reporting V; Source of data A; Mode of reporting A; Confidentiality C; Frequency of publication V.

- Notes:
  - 1/ Data on reserves as reported by the authorities include substantial amounts of pledged or illiquid assets not identified clearly in official reports.
  - 2/ Refers to central government balance.
  - 3/ The authorities do not provide comprehensive data on external arrears.
  - 4/ D = daily; W = weekly; M = monthly; Q = quarterly; A = annual; V = on mission or staff visits.
  - 5/ A = direct reporting by central bank or relevant ministry (including reports forwarded by World Bank); C = cable or fax (including reports forwarded by World Bank).
  - 6/ C = unrestricted use; E = embargoed for a period of time.

*Italicized line: Source: APPENDIX IV — Core Statistical Indicators (IMF content provided).*

### Illustration of Zimbabwe’s External Debt Situation
- Context:
  - Foreign exchange shortages led to cessation of external debt repayments beginning in 2000.
  - External arrears estimated at US$1.8 billion, or 44 percent of total debt by end-2003.
  - Exports have fallen by a cumulative 45 percent since their 2000 peak.
  - Outlook expected to worsen in 2004; any subsequent recovery in exports likely gradual.
- Debt relief simulation (illustrative, Naples terms at end-2005):
  - Naples simulation: rescheduling of all ODA debt and a two-thirds reduction in the stock of non-ODA debt; simulation assumed policy adjustments in 2005 and a recovery in exports.
  - NPV-to-exports ratio: reduced from a projected 322 percent of exports before debt relief at end-2005 to 215 percent after the simulated relief.

Zimbabwe, Public and Publicly-Guaranteed External Debt Simulation (selected rows)
- Nominal Stock (US$ million) (Medium- and long-term debt only) — 2001: 3,762 | 2002: 3,922 | 2003: 4,067 | 2004 Proj.: 4,235 | 2005 Proj.: 4,356
- (In percent of GDP) — 2001: 44 | 2002: 51 | 2003: 57 | 2004 Proj.: 62 | 2005 Proj.: 62
- (In percent of exports of goods and services) — 2001: 207 | 2002: 244 | 2003: 289 | 2004 Proj.: 326 | 2005 Proj.: 320
- Of which: arrears (US$ million) — 2001: 797 | 2002: 1,253 | 2003: 1,754 | 2004: ... | 2005: ...
- (In percent of GDP) — 2001: 9 | 2002: 16 | 2003: 25 | 2004: ... | 2005: ...
- NPV of Debt (in percent of exports of goods and services):
  - Before Naples Simulation — 2003: 296 | 2004 Proj.: 330 | 2005 Proj.: 322
  - After Naples Simulation — 2005 Proj.: 215
- Memorandum item: Exports of Goods and Services (US$ million) — 2001: 1,818 | 2002: 1,607 | 2003: 1,409 | 2004 Proj.: 1,298 | 2005 Proj.: 1,363

*Italicized line: Source: APPENDIX V (IMF content provided).*

### Statement by the IMF Staff Representative (July 7, 2004) — Key updates and indicators
- Purpose: Reports information available since the staff report; does not change the thrust of the staff appraisal.
- Inflation and prices:
  - Monthly inflation remained at 6 percent in May 2004.
  - Year-on-year rate fell to 449 percent, from 505 percent in April.
- Broad money and credit:
  - Broad money grew by 400 percent in the year to May 2004, largely driven by credit to the private sector.
  - Credit boosted by very large increases in credit from RBZ to domestic money banks under the highly concessional productive sector finance facility.
- Liquidity management and RBZ operations:
  - At end-March 2003 RBZ stopped issuing the 900-percent effective interest rate paper used to mop up liquidity.
  - When large amounts of RBZ paper started falling due in mid-June 2003, RBZ introduced a new liquidity management policy that compulsorily converts any surplus in the money market at the close of each day into new “open market” treasury bills with maturities up to 2 years and at negative real interest rates (nominal effective rates of 70-100 percent), despite staff advice to move to market-based policies.
- Reserves and foreign exchange:
  - Usable gross official reserves increased from US$18 million at end-2003 to US$76 million at end-May 2004, in response to clampdown on the parallel market and the beginning of the tobacco season in April.
  - Tender rate remained largely unchanged since March/April 2004 at around Z$5,350/US$, despite increased demand.
  - Exchange rate in the parallel market reportedly depreciated to over Z$6,000 in mid-June 2004, likely reflecting widening gap between supply and demand of foreign exchange at the tender.

*Italicized line: Source: Statement by the IMF Staff Representative, July 7, 2004 (IMF content provided).*

### 5.      The fiscal deficit widened through April 2004, as an increase in revenue collection

### _cr04297 - 5.      The fiscal deficit widened through April 2004, as an increase in revenue collection

### Fiscal developments through April 2004
- The fiscal deficit widened through April 2004 as an increase in revenue collection was more than offset by higher expenditure.
- Resulted in a cumulative deficit over the first four months of the year of 18 percent of GDP, up from a revised deficit of 17 percent of GDP in the first quarter.
- Little additional detail is available.

### Payments on arrears to multilateral creditors
- In early June 2004, Zimbabwe made payments of US$1.5 million to the World Bank.
- In early June 2004, Zimbabwe made payments of US$1.2 million to the African Development Bank.
- These payments were in line with the RBZ’s recent policy to begin making some payments on arrears to multilateral creditors other than the IMF.

### Other political and electoral developments
- On June 10, 2004, the government closed down an independent weekly newspaper.
- Ahead of the general elections in March 2005, the government has reportedly accepted the election guidelines drawn up by the South African Development Community (SADC) which recommend that voting take place in a single day, under the supervision of a new electoral commission.

### Macroeconomic background and 2003–2004 developments (summary points from the PIN)
- Real GDP declined by 9.3 percent in 2003 and another broad-based decline is projected this year.
- Year-on-year inflation reached 600 percent during November 2003-February 2004.
- Monthly inflation reached 34 percent in November 2003 and fell to 5 percent in April 2004 following tightening of monetary policy and an appreciation of the exchange rate.
- Broad money growth increased to 400 percent in December 2003.
- Private sector credit expansion was above 520 percent (December 2003).
- During the first two months of 2004, the Reserve Bank injected the equivalent of two-and-a-half times the money stock at end-2003 through liquidity support and a concessional facility at a highly negative interest rate; it later began to mop up excess liquidity at high interest rates.
- Fiscal operations were almost balanced in 2003, but the 2004 budget is expansionary, with a deficit target of 7.3 percent of GDP.
- The budget deficit rose to 13.4 percent of quarterly GDP in the first quarter of 2004, following a 220 percent wage increase in January and a catch up in current and capital spending.
- The external current account deficit narrowed to 6.0 percent in 2003, from 7.3 percent in 2002.
- Arrears continued to accumulate to reach US$2.1 billion, or 44 percent of external debt (date implied end-2003/early-2004 context).
- The average exchange rate strongly appreciated in early 2004 after introduction of a heavily managed foreign exchange tender system in January and clamping down on the parallel market.
- In April 2004, the average exchange rate was some 40 percent appreciated relative to the parallel exchange rate at end-2003. The tender rate depreciated somewhat in early May.
- Progress has been limited on structural reforms; most price controls were removed after May 2003 and the fuel market was partially liberalized, while civil service reform and privatization have stalled.
- Zimbabwe incurred overdue financial obligations to the Fund since February 2001; arrears to the Fund totaled SDR 197 million as of end-April 2004.

### Executive Board assessment — main concerns and recommendations
- Board expressed grave concern over continued sharp economic decline and high inflation, with dire consequences: rising unemployment, rapid deterioration of social indicators, malnourishment, disease, sharp fall in agricultural production, continued food insecurity, and one in four adults HIV-positive.
- Crisis attributed mainly to inappropriate macroeconomic and structural policies, weak financial management, distortionary controls and regulations, and disorderly implementation of fast-track land reform; external factors compounded these effects.
- Regretted weak governance, corruption and lack of respect for the rule of law undermining confidence and leading to capital flight and emigration.
- Urged adoption of a comprehensive policy package to halt socio-economic deterioration, restore confidence and donor support, and restart sustainable growth.
- Fiscal policy recommendations:
  - Decisive fiscal effort needed urgently to help ease inflationary pressures.
  - Exercise strict control over the wage bill and non-essential spending while protecting social and infrastructure outlays and food imports if necessary.
  - Reduce quasi-fiscal activities, better target subsidies, and eliminate ad hoc tax exemptions to strengthen revenues.
- Monetary and financial sector recommendations:
  - Reducing inflation should be the main priority; call for sustained tightening of monetary policy.
  - Contain growth of credit, particularly credit at preferential, non-market interest rates; improve short-term liquidity management.
  - Eliminate the system of dual interest rates; permit market forces to determine interest rates; phase out concessional lending to selected borrowers.
  - Step up financial sector supervision, particularly provisioning and capital adequacy; prepare for restructuring weak and unsound banks; reduce systemic risks including concentration of lending among few firms.
- External and exchange rate recommendations:
  - Unify the exchange rate to fully reflect market factors and improve external competitiveness; remove surrender requirements.
  - Further liberalize the trade regime; establish a timetable for removal of exchange restrictions on payments and transfers for current international transactions and elimination of multiple currency practices.
- Food security and structural reform recommendations:
  - Replace the monopoly of the Grain Marketing Board with well-targeted basic food subsidies to address impediments to improving food security.
  - Address the aborted crop assessment decision (early May) which left Zimbabwe without a basis for timely appeal for food aid.
  - Emphasize reforms to increase production and productivity, restore rule of law, remove restrictive regulations to formalize activities, and eventually privatize public enterprises to reduce fiscal burden and improve service delivery.
  - Pursue anti-corruption efforts by addressing root causes—numerous economic distortions that provided rent-seeking opportunities.
- Land reform and tenure:
  - Address problems relating to land reform in a transparent and orderly manner; clarify tenure rights to raise agricultural production and facilitate access to credit for farmers.
- Fund cooperation and arrears:
  - Took note of authorities’ request for resumption of technical assistance (suspended in 2002); staff will continue policy advice in the Article IV context.
  - Stressed need to address deficiencies in the statistical system.
  - Considered resumption of partial payments by Zimbabwe to the Fund in 2004 a positive step but insufficient to stabilize arrears; called for more decisive actions and significantly increasing payments to the Fund.
  - Agreed to consider again the Managing Director’s complaint regarding Zimbabwe’s compulsory withdrawal from the Fund within six months.

### Key numeric indicators (selected, as presented)
- Real GDP (market prices) 2003: -9.3 percent.
- Consumer prices (end of period): 2000: 55.2; 2001: 112.1; 2002: 198.9; 2003: 598.7.
- Government revenue, excluding grants (percent of GDP): 2000: 26.7; 2001: 24.1; 2002: 25.2; 2003: 23.7.
- Government expenditure and net lending (percent of GDP): 2000: 48.3; 2001: 33.5; 2002: 29.2; 2003: 24.0.
- Overall balance, excluding grants and arrears (percent of GDP): 2000: -21.6; 2001: -9.4; 2002: -3.9; 2003: -0.3.
- Primary balance, excluding grants (percent of GDP): 2000: -5.4; 2001: 0.0; 2002: 0.2; 2003: 0.8.
- Broad money (M3, end of period; percentage change): 2000: 59.9; 2001: 102.7; 2002: 164.8; 2003: 413.5.
- 91-day treasury bills (annualized yield): 2000: 57.8; 2001: 25.9; 2002: 26.6; 2003: 60.7.
- Exports (billions of U.S. dollars): 2000: 2.20; 2001: 1.58; 2002: 1.40; 2003: 1.23.
- Imports (billions of U.S. dollars): figures presented with formatting: -1.91-1.79 -1.92-1.63 (as in source table).
- Current account balance (excluding official transfers) (billions of U.S. dollars): -0.04-0.50 -0.60-0.42 (as in source table).
- Current account (In percent of GDP at the official exchange rate) 1/: -0.5-4.8 -2.8-4.8 (as in source table).
- Current account (In percent of GDP at world prices) 2/: -0.4-5.9 -7.9-6.0 (as in source table).
- Overall balance (billions of U.S. dollars): -0.14-0.27 -0.64-0.57 (as in source table).
- Usable reserves (millions of U.S. dollars; end of period): 2000: 22.1; 2001: 20.0; 2002: 15.1; 2003: 18.3.
- Months of imports of goods and services (usable reserves): 2000: 0.1; 2001: 0.1; 2002: 0.1; 2003: 0.1.
- Total external debt (percent of GDP at official exchange rate; end of period) 1/: 2000: 54.3; 2001: 37.5; 2002: 20.0; 2003: 55.3.
- Total external debt (percent of GDP at world prices; end of period) 2/: 57.0; 68.4 (as presented).
- Debt service (percent of exports of goods and services): 2000: 22.9; 2001: 31.4; 2002: 35.1; 2003: 35.4.
- Arrears to the Fund totaled SDR 197 million as of end-April 2004.
- Zimbabwe made payments of US$1.5 million (World Bank) and US$1.2 million (African Development Bank) in early June 2004.

*Public Information Notice PIN No. 04/104 — IMF Concludes 2004 Article IV Consultation with Zimbabwe (Executive Board discussion of July 7, 2004).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04297.pdf_