IMF Staff Completes 2017 Article IV Visit to Zimbabwe

IMF News, May 15, 2017

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Press Release No. 17/172
Date: May 15, 2017
IMF team led by Ana Lucía Coronel visited Zimbabwe from May 2 to 13, 2017 to conduct 2017 Article IV Consultations.
Purpose: discussions with national authorities, private sector representatives, and civil society on recent economic developments, outlook and risks, and policies to restore economic stability.
Media relations: PRESS OFFICER: Lucie Mboto Fouda; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
The Executive Board of the IMF is expected to consider the staff report for Zimbabwe’s 2017 Article IV Consultations in early July.

The economy is facing difficulties due to:
- A severe drought.
- Slow reform momentum.
These developments have led to high expenditure levels since late 2015, despite subdued revenues.
A difficult external environment is limiting access to foreign inflows.
Large fiscal imbalances are being financed by domestic borrowing.
The expansionary fiscal stance combined with curtailed net capital flows has resulted in cash shortages that are hampering economic activities.
The recovery in agriculture and mining will drive growth in 2017, but maintaining momentum requires fiscal consolidation.

Excessive government spending could:
- Exacerbate cash scarcity.
- Further jeopardize the health of the external and financial sectors.
- Ultimately fuel inflation.
Spending pressures stem from:
- High employment costs.
- Government transfers to support specific economic sectors.
- Elevated discretionary expenditure.
Central bank financing of the deficit and issuance of debt and quasi-currency instruments pose risks to restoring confidence and attracting dollar inflows.
The financial sector is not fully intermediating resources to productive credit and is instead financing fiscal operations.

Fiscal consolidation:
- Expedite plans to reduce the deficit to a sustainable level.
- Refrain from central bank financing of the deficit.
- Contain issuance of debt and quasi-currency instruments.
Public expenditure management:
- Reduce the wage bill by reviewing allowances and benefits and evaluating the size of the civil service with a view to eliminating non-essential posts.
- Redesign government interventions to support agriculture to maximize production benefits while minimizing risks to the public-sector balance sheet.
- Reinforce efforts to curtail non-priority spending while safeguarding social outlays.
Financial sector and external confidence:
- Restore the financial sector’s role of intermediating resources by channeling deposits to productive credit rather than financing fiscal operations.
- Restore confidence to attract necessary dollar inflows.
Private sector and governance reforms:
- Take actions to unleash the potential of the private sector and ensure growth benefits the most vulnerable.
- Demonstrate that Zimbabwe is open for business by:
- Enhancing efforts to tackle corruption.
- Encouraging private sector investment.
- Allowing the market to determine prices.
- Promoting labor flexibility.
- Creating a stable legal and regulatory framework to reduce policy uncertainty.
- Enhance domestic revenue mobilization.
- Boost transparency in the mining sector.
- Improve governance in public enterprises to strengthen the fiscal position.

The team stands ready to continue working with the Zimbabwean authorities to address policy challenges.
Based on the mission’s preliminary findings, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

IMF Communications Department — End-of-Mission press release (May 15, 2017).