Press Release: IMF Statement on the Conclusion of 2004 Article IV Consultation Discussions with Zimbabwe

March 31, 2004

The following statement was issued in Harare on March 31, 2004:

A staff team from the International Monetary Fund (IMF) visited Harare from March 17-31, 2004 in connection with the annual Article IV consultation between the IMF and Zimbabwe. The purpose of the visit was to hold discussions with the Zimbabwean authorities on the economic situation and macroeconomic policies. The staff team also met with representatives of civil society, such as NGOs, the business and financial communities, political parties, and trade unions, as well as the diplomatic community.

Zimbabwe's economy has experienced a sharp deterioration in the last five years. Real GDP has declined by about 30 percent, and is still contracting. Inflation doubled in each of the last three years to reach 600 percent at the end of 2003. This has had dire social consequences: unemployment is high and rising, poverty has doubled since 1995, school enrollment declined to 65 percent in 2003, and the HIV/AIDS pandemic remains largely unchecked.

While this in part reflected exogenous shocks, such as inclement weather, structural changes in agriculture related to the way in which the land reform was implemented negatively affected agricultural production. In recognition of Zimbabwe's grave food shortages, foreign donors have provided large amounts of humanitarian aid, but other donor assistance has been curtailed because of concerns over governance issues.

Economic policies have not adequately addressed the difficulties. In particular, loose monetary policy intensified inflationary pressures and has left interest rates highly negative in real terms, imposing a heavy tax on savers, encouraging excessive borrowing, and increasing financial sector vulnerability. Excessive liquidity growth led to a flight to alternative assets that contributed to record increases in real estate and stock prices, hoarding of goods, and the depreciation of the parallel exchange rate. Exports suffered because of the uncompetitive official exchange rate, and official imports were severely constrained. However, reflecting strong performance in the last quarter, budgetary operations of the government were almost balanced in 2003. This was due to higher sales tax collections after the mid-year liberalization of most prices, including fuel, and the further compression of expenditure in real terms, including wages.

The staff team welcomed some of the steps taken in the 2004 budget, the December Monetary Policy Statement, and subsequently, the efforts to strengthen banking supervision. It encouraged the authorities to accelerate and broaden these efforts.

Among the recommendations discussed were:

  • The importance of a commitment to consistently focus monetary policy on taming inflation and reducing pressure on the exchange rate, taking into account the vulnerability of the banking system.

  • The need to gear fiscal policy to support monetary tightening.

  • Use of the exchange rate decisively to reinvigorate exports and contain import demand.

  • And, restarting tripartite discussions on Zimbabwe's economic challenges in a concerted and comprehensive way involving all social partners.

While Zimbabwe's arrears currently preclude access to IMF lending, further strong policy efforts would be an important signal of Zimbabwe's determination to address its serious economic difficulties. Such efforts would also begin to lay the basis for regularizing Zimbabwe's arrears to the IMF (US$290 million at end-February 2004) and other creditors. The staff team welcomed the authorities' recent payments to the IMF of US$6 million, and the renewed commitment to make further small quarterly payments of US$1.5 million. The IMF's Executive Board will closely examine the progress made on policies and payments when it considers the Article IV consultation report and the issue of Zimbabwe's overdue payments to the IMF in early July.


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