IMF Staff Concludes Article IV Mission to Zimbabwe

IMF News, November 16, 2021

Source details

IMF staff mission led by Dhaneshwar Ghura, Mission Chief for Zimbabwe, held discussions through virtual meetings in the context of the 2021 Article IV consultation from October 25 to November 16, 2021.
Press release date: November 16, 2021.
Press officer: Eva-Maria Graf. Phone: +1 202 623-7100. Email: MEDIA@IMF.org.
Note on nature of statement: End-of-Mission press releases convey preliminary findings after a visit; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Recent shocks and COVID-19:
- The COVID-19 crisis impacted an already weakened economy following cyclone Idai and a protracted drought.
- Containment and support measures introduced by the authorities helped in mitigating the adverse effects of the pandemic.
Historical contraction:
- Zimbabwe’s economy contracted cumulatively by about 11 percent during 2019-20 owing to the combined effects of the pandemic, cyclone Idai, a protracted drought, and weakened policy buffers.
2021 developments:
- Following a severe wave in June-August 2021, COVID-19 infection rates have slowed significantly, lockdown measures have been eased, and the vaccination program continues steadily.
- Economic activity is recovering in 2021, with real GDP expected to grow by about 6 percent, reflecting a bumper agricultural output, increased mining and energy production, buoyant construction and manufacturing activity, and increased infrastructure investment.
Risks:
- Downside risks remain, dominated by the pandemic’s evolution, vulnerability to climatic shocks, and the need to further strengthen macroeconomic policies.
- Uncertainty remains high; the outlook will depend on the pandemic’s evolution—compounded by the economy’s vulnerabilities to climatic shocks—and implementation of sustainable policies.

IMF mission notes authorities’ significant efforts to stem inflationary pressures.
Policy measures in the right direction cited by mission:
- Contained budget deficits and reserve money growth.
- Higher monetary policy rates.
- More flexibility in the RBZ auction exchange rate.

Near-term macroeconomic imperative:
- Continue close coordination among fiscal, exchange rate, and monetary policies.
Key priority actions (as stated by the mission):
- Allow greater official exchange rate flexibility and tackle FX market distortions, accompanied by an appropriate monetary stance.
- Create fiscal space for critical spending while containing fiscal deficits.
- Implement growth-enhancing structural and governance reforms.
- Continue to enhance data transparency.
Structural objectives:
- Macroeconomic and structural reforms would help in durably restoring macroeconomic stability, improving competitiveness, enhancing financial sector resilience, and boosting productivity, thus paving the way for higher and more inclusive growth and poverty reduction.
- The authorities’ strategy and policies as embodied in their 2021-25 National Development Strategy 1 are appropriate and need to be fully operationalized and implemented.

Authorities’ plans for SDR allocation:
- Plans to use the recent SDR allocation to support spending in social, productive, and infrastructure sectors, as well as building reserve buffers.
- Guidance from mission: the use of the SDR allocation should not substitute for critical reforms, be spent on priority areas within a medium-term plan, and follow good governance and transparency practices.
IMF financial support constraints:
- Zimbabwe has been a Fund member in good standing since it cleared its outstanding arrears to the PRGT in late 2016.
- The IMF is precluded from providing financial support to Zimbabwe due to an unsustainable debt and official external arrears.
- A Fund financial arrangement would require:
- A clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and obtaining financing assurances from creditors;
- A reform plan that is consistent with macroeconomic stability, sustainable growth, and poverty reduction;
- A reinforcement of the social safety net;
- Governance and transparency reforms.
Authorities’ reengagement moves:
- The authorities have developed an Arrears Clearance, Debt Relief and Restructuring strategy and have resumed token payments on external arrears.

IMF staff met with:
- Minister of Finance and Economic Development Hon. Professor Mthuli Ncube, Permanent Secretary Mr. George Guvamatanga, Reserve Bank of Zimbabwe Governor Dr. John Mangudya, other senior government and RBZ officials, members of Parliament, representatives of the private sector and civil society, and Zimbabwe’s development partners.
Next formal steps:
- Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

IMF press release, November 16, 2021.