Press Release: IMF Executive Board Concludes 2016 Article IV Consultation with Zimbabwe and Third Review Under the Staff Monitored Program
IMF News, May 4, 2016
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- Published: May 4, 2016
Recent economic developments
- On May 2, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.
- Zimbabwe’s economic difficulties have deepened due to:
- Drought, erratic rains, and increasing temperatures, which have reduced agricultural output and disrupted hydropower production and water supplies.
- Tight liquidity conditions resulting from limited external inflows and lower commodity prices.
- Inflation remaining in negative territory because of the appreciating U.S. dollar—the country’s main currency—and lower commodity prices.
- Zimbabwe remains in debt distress and the level of international reserves is low.
- Despite the adverse environment, authorities:
- Reduced the fiscal deficit in both 2014 and 2015.
- Started to rationalize public expenditures by implementing recommendations from the 2015 civil service audit.
- Are amending the Public Financial Management and Procurement Acts.
- The Reserve Bank of Zimbabwe has taken measures to restore confidence in the financial sector; all banks in operations now have capital buffers above the minimum requirements.
- The authorities met their commitments under the Staff Monitored Program (SMP) that ended at end-December 2015.
- The SMP focused on implementing a limited number of key reforms to show capacity for reforms required for a Fund-supported program.
- The SMP has been a useful anchor in a difficult macroeconomic and political environment.
Macroeconomic outlook and risks
- Without bold reforms, economic difficulties will continue in the medium term.
- Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction.
- The current account deficit is expected to narrow but remain high over the medium term, financed mainly by loans to the private sector.
- Risks to the outlook:
- Prolonged adverse weather conditions.
- Weak commodity prices.
- Policy implementation in a difficult political environment.
- Policy implementation priorities to reduce risks:
- Timely implementation of measures to curb the wage bill.
- Continued progress in State-Owned Enterprise (SOE) reforms to lower employment costs.
Authorities’ intended reforms and reengagement strategy
- The authorities are pursuing a gradual, step-by-step approach to reengaging with the international community.
- Clearing arrears to the International Financial Institutions (IFIs) is seen as a first step.
- In October 2015 the authorities presented a strategy to clear their external arrears to the IFIs and reform plans to creditors and development partners; these received broad support.
- Once implemented, the strategy and reform plans should provide positive signals to investors and creditors and help unlock external flows to finance development plans and private sector-led growth.
- Going forward, the authorities intend to:
- Reduce the size of the wage bill to re-orient spending towards priority capital and social outlays.
- Improve debt management, develop a comprehensive public financial management strategy, and strengthen VAT policy and key processes in revenue administration.
- Improve the business environment, including by a transparent and consistent application of their indigenization policy and a new comprehensive land reform program, which would include a framework for land compensation.
Executive Board Assessment and recommendations
- Directors commended the authorities for successful implementation of economic policies under the SMP despite difficult circumstances.
- Directors noted adverse weather and lower commodity prices have taken a heavy toll on economic activity and social well-being.
- Key Director recommendations and emphases:
- Maintain fiscal prudence and press ahead with ambitious structural reforms to address impediments to investment, foster private sector-led growth, and reduce poverty, using the Fund’s targeted technical assistance.
- Further progress on reforms and clearance of external arrears will pave the way for full re-engagement with the international community and regain access to external financing, particularly from the Fund.
- A step-up to a comprehensive and deep economic policy adjustment agenda is critical.
- Achieving a sustainable fiscal position requires a significant reduction in the wage bill while rebalancing the budget toward infrastructure investment and social outlays to stimulate growth.
- Given the relatively high tax-to-GDP ratio, focus on base-broadening, increasing non-tax revenue from mineral resources, improving the efficiency of VAT collections, and enhancing tax administration.
- Accelerate SOE reform, strengthen public financial management, and enhance transparency in the mining sector.
- Continue to strengthen bank supervision and risk management, facilitate financial deepening, and promote financial inclusion.
- Implement the indigenization policy in a business-friendly and transparent manner and resolve outstanding land issues swiftly.
- Tackle corruption and promote economic diversification.
- Pursue a strong debt management strategy, including limiting non-concessional borrowing to critical growth-enhancing and poverty-reducing projects.
- Clear all arrears to the Poverty Reduction and Growth Trust (PRGT) and other IFIs; once arrears to the PRGT are cleared, remedial measures against Zimbabwe can be removed, including reinstatement to the list of PRGT-eligible countries.
Selected economic indicators (2012–15)
- Real GDP Growth (annual percentage change)
- 2012: 10.6
- 2013: 4.5
- 2014: 3.8
- 2015 Est.: 1.1
- Nominal GDP (US$ millions)
- 2012: 12,472
- 2013: 13,490
- 2014: 14,197
- 2015 Est.: 14,680
- GDP deflator (annual percentage change)
- 2012: 3.0
- 2013: 3.5
- 2014: 1.3
- 2015 Est.: 2.3
- Inflation (annual percentage change)
- Consumer price index (annual average)
- 2012: 3.7
- 2013: 1.6
- 2014: -0.2
- 2015 Est.: -2.4
- Consumer price index (end-of-period)
- 2012: 2.9
- 2013: 0.3
- 2014: -0.8
- 2015 Est.: -2.5
- Central government (percent of GDP)
- Revenue and grants
- 2012: 28.0
- 2013: 27.7
- 2014: 26.6
- 2015 Est.: 25.5
- Expenditure and net lending
- 2012: 29.2
- 2013: 30.1
- 2014: 28.3
- 2015 Est.: 26.5
- Overall balance (commitment basis)
- 2012: -1.2
- 2013: -1.8
- 2014: -1.1
- Money and credit (US$ millions)
- Broad money (M3)
- 2012: 3,719
- 2013: 3,888
- 2014: 4,377
- 2015 Est.: 4,736
- Net foreign assets
- 2012: -401
- 2013: -755
- 2014: -717
- 2015 Est.: -676
- Net domestic assets
- 2012: 4,120
- 2013: 4,643
- 2014: 5,094
- 2015 Est.: 5,412
- Reserve money
- 2012: 273
- 2013: 272
- 2014: 464
- 2015 Est.: 563
- Money and credit (annual percentage change)
- Domestic credit (net)
- 2012: 91.6
- 2013: 6.2
- 2014: 4.2
- 2015 Est.: 15.5
- Of which: credit to the private sector
- 2012: 27.1
- 2013: 4.7
- Balance of payments (US$ millions)
- Current account balance
- 2012: -1,818
- 2013: -2,461
- 2014: -2,157
- 2015 Est.: -1,506
- (percent of GDP)
- 2012: -14.6
- 2013: -18.2
- 2014: -15.2
- 2015 Est.: -10.3
- Official reserves (end-of-period)
- Gross international reserves (US$ millions)
- 2012: 398
- 2013: 284
- 2014: 303
- 2015 Est.: 340
- (months of imports of goods and services)
- 2012: 0.6
- 2013: 0.4
- 2014: 0.5
- 2015 Est.: 0.5
- Debt (end-of-period)
- PPG external debt (US$ millions)
- 2012: 6,655
- 2013: 7,015
- 2014: 6,979
- 2015 Est.: 7,313
- (percent of GDP)
- 2012: 53.4
- 2013: 52.0
- 2014: 49.2
- 2015 Est.: 49.8
Source: IMF Press Release No. 16/194, May 4, 2016.