Press Release: IMF Approves Stand-By Credit for Zimbabwe

IMF News, June 1, 1998

Source details

IMF approved a Stand-By credit for Zimbabwe authorizing drawings of up to SDR 130.75 million (about US$175 million) over the next 13 months in support of Zimbabwe’s 1998 economic reform program.
Of the total, SDR 39.2 million (about US$52 million) is available immediately.
Subsequent disbursements will be made on a quarterly basis, subject to Zimbabwe’s meeting performance targets and program reviews.

Zimbabwe experienced intense balance of payments pressures during November-December 1997.
The value of the Zimbabwe dollar fell by nearly 50 percent in local currency terms and foreign reserves were reduced to dangerously low levels.
Contributing factors:
- Payment of large compensation benefits to war veterans.
- Accommodating monetary policy exposing weaknesses in external competitiveness stemming from large and protracted fiscal deficits.
- Poor tobacco crop and falling gold prices hurting trade performance.
- Uncertainties over land reform and fears of a drought weakening market sentiment for the currency.
Government corrective measures toward the end of 1997:
- Fiscal measures to cover fully the cost of veterans’ payments.
- Increases in interest rates.
- Clarification of government intentions on land reform.
Result: These measures restored a measure of stability to the foreign exchange market.

Fundamental goal: Ensure the recent depreciation of the exchange rate translates into a substantial improvement in competitiveness.
Primary instruments: Fiscal consolidation and monetary restraint.
Fiscal target: Reduce the budget deficit, excluding grants and privatization proceeds, to 5.5 percent of GDP in 1998.
Reduce government stock of domestic debt to enable the Reserve Bank to tighten domestic credit and build up foreign reserves without constraining private sector bank credit.
Inflation and outlook:
- Fueled by recent exchange rate depreciation, the 12-month rate of inflation rose markedly to 26 percent during the first four months of 1998 on an end-of-period basis.
- Projected to decline to 19 percent by the end of 1998.
- This inflation profile is expected to retain much of the recent gains in international competitiveness and achieve a significant narrowing in the external current account deficit in 1998.

Privatization progress:
- Privatization of public enterprises began in earnest in 1997 with several larger parastatals sold.
- Divesture program accelerated by advancing sale of government shares in public and private companies.
- Proceeds expected to total the equivalent of nearly 2 percent of GDP in 1998.
- Government decided to partially privatize the Post and Telecommunications Corporation at a later date.
Land reform:
- Still in early design stages.
- Redistribution of land will proceed within the confines of the law; pace governed by availability of budgeting resources.
- Land redistribution to be undertaken in an orderly and transparent manner to protect agricultural output and the welfare of workers on the farms to be acquired.

Recent sharp depreciation of the Zimbabwe dollar and large price increases for basic food items exacerbated declines in real incomes and employment.
Near-term government measures:
- Released additional maize from the strategic grain reserve to help alleviate immediate price pressures.
- Provision in the current budget for transfer of food to the most needy.
- Budgetary contingency reserve available to meet emergency requirements.
- Allocations for social spending were raised in the current budget and have been protected from recent budgetary cuts.
Medium-term approach: Broad-based economic growth and price stability as keys to effective poverty alleviation.
Land reform implementation expected to directly assist the poorest and most deprived, particularly those in high-density rural areas.

Immediate task: Replenish Zimbabwe’s foreign exchange reserves to at least 1.5 months of imports by the end of 1998.
Further reserve accumulation planned in 1999 and beyond.
A substantial financing gap remains in 1998:
- Could be partially filled by disbursements from multilateral sources.
- The remainder to be mobilized through bilateral donor support, primarily sought from Zimbabwe’s bilateral donors in the context of the Consultative Group.

Zimbabwe joined the IMF on September 29, 1980.
Quota is SDR 261 million (about US$349 million).
Outstanding use of IMF financing currently totals SDR 270 million (about US$361 million).

Real GDP (percent change):
- 1997*: 3.7
- 1998**: 3.0
- 1999***: 5.3
- 2000***: 5.5
- 2001***: 5.7
Consumer prices (end of period) (percent change):
- 1997*: 20.1
- 1998**: 18.6
- 1999***: 8.1
- 2000***: 4.5
Overall fiscal balance, excluding grants (deficit -) (percent of GDP):
- 1997*: -8.3
- 1998**: -5.5
- 1999***: -4.2
- 2000***: -3.9
- 2001***: -2.8
External current account balance (deficit -) (percent of GDP):
- 1997*: -9.0
- 1998**: -4.9
- 1999***: -4.3
- 2000***: -2.4
- 2001***: -1.8
Gross official reserves (months of imports):
- 1997*: 0.8
- 1998**: 1.5
- 1999***: 1.8
- 2000***: 2.6
- 2001***: 2.9
Sources: Zimbabwean authorities; and IMF staff estimates.
Footnotes as presented:
- * Estimate
- ** Program
- *** Projected
- 1 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.

International Monetary Fund press release, June 1, 1998.