IMF Executive Board Concludes 2022 Article IV Consultation with Zimbabwe

IMF News, March 24, 2022

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IMF Executive Board Concludes 2022 Article IV Consultation with Zimbabwe

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• Published: March 24, 2022

Economic developments and shocks (2019–21)

• Zimbabwe experienced severe exogenous shocks (cyclone Idai, protracted drought, and the COVID-19 pandemic) during 2019-20, and policy missteps in 2019, leading to a deep recession and high inflation.
• Real GDP contracted cumulatively by 11.7 percent during 2019-20.
• Inflation reached 837 percent (y/y) by July 2020.
• Pandemic-related spending:
  • 2020: equivalent to 2 percent of GDP, financed by reallocation within the budget.
  • 2021: about 1.6 percent of GDP, partially financed by the SDR allocation.
• Additional 2021 expenditures increased to bolster food security and farm inputs to vulnerable households.
• The Reserve Bank of Zimbabwe introduced a medium-term bank accommodation lending facility and private sector lending facility.
• Real GDP rose by 6.3 percent in 2021 reflecting a bumper maize harvest, strong pickup in mining, and buoyant construction.
• Inflation lowered to 60.7 percent (y/y) at end-2021 following a tighter policy stance since mid-2020 (relative to 2019).
• Fiscal policy was tightened in 2020‑21, reflecting increased revenues and lowered spending.
• The current account balance turned into a surplus during 2019-21, reflecting favorable metals’ prices, lower imports, and a surge in remittances.
• Persistent challenges: high double-digit inflation, wide parallel foreign exchange market premia, rising poverty, and about a third of the population at risk of food insecurity.

Outlook and projections

• Output recovery resumed in 2021 and is expected to continue, albeit at a slower pace:
  • Growth projected at about 3½ percent in 2022 and 3 percent over the medium term.
• Authorities’ fiscal targets:
  • Aim to limit the 2022 budget deficit at 1½ percent of GDP, and below 2 percent of GDP over the medium-term.
• External sector projection:
  • Current account surplus expected to decline over the medium term, reflecting a pickup in imports and slowdown in remittances.
• Scarring risks: effects from the COVID-19 pandemic and protracted drought compounded existing structural constraints and would lead to scarring on the economic outlook.

Reengagement, debt, and arrears

• International reengagement has lagged as stakeholders seek political and economic reforms.
• The 2019 Staff-Monitored Program experienced significant policy slippages and elapsed without a review.
• Authorities have developed a debt resolution strategy and started token payments to creditors to make progress on reengagement.
• Zimbabwe remains in debt distress, with large external arrears to official creditors.

Executive Board assessment and policy recommendations

• Directors welcomed signs of economic recovery and commended authorities for swift pandemic response and prioritizing social support.
• Key recommendations and assessments:
  • Fiscal policy should restore macroeconomic stability and create fiscal space for priority spending.
  • Enhance revenue mobilization, including through broadening the tax base and improving tax administration and compliance.
  • Accelerate reforms of state-owned enterprises and enhance fiscal controls to limit fiscal risks.
  • Use the SDR allocation prudently and transparently.
  • Further efforts to enhance debt management and transparency; continue re-engagement with external creditors, including token payments and a debt resolution strategy.
  • Further monetary tightening recommended given persistently high inflation.
  • Increase operational independence of the central bank, discontinue its quasi-fiscal operations, and improve coordination with fiscal authorities.
  • Allow greater exchange rate flexibility by enabling a more transparent and market-driven price process; phase out exchange restrictions and multiple currency practices as soon as conditions permit.
  • Continue vigilance to ensure financial stability and address remaining banking sector weaknesses.
  • Progress on AML/CFT framework welcomed; further efforts encouraged to address remaining deficiencies.
  • Address institutional weaknesses, implement the 2020 National Anti-Corruption Strategy, prioritize structural reforms to improve the business climate and build resilience to climate change.
  • A new Staff Monitored Program could help establish a track record of sound policies and support re-engagement efforts.

Selected economic indicators (highlights from Table 1)

• Real GDP growth: -6.1 (2019); -5.3 (2020); 6.3 (2021); 3.5 (2022); 3.0 (2023).
• Nominal GDP (US$ millions): 22,600 (2019); 21,670 (2020); 24,124 (2021); 26,425 (2022); 27,963 (2023).
• GDP deflator: 440.5 (2019); 569.0 (2020); 128.5 (2021); 68.1 (2022); 39.8 (2023).
• CPI (annual average): 255.3 (2019); 557.2 (2020); 98.5 (2021); 56.4 (2022); 46.3 (2023).
• CPI (end-of-period): 521.1 (2019); 348.6 (2020); 60.7 (2021); 55.0 (2022); 42.0 (2023).
• Money supply (M2) (annual percentage change): 249.4 (2019); 481.3 (2020); 142.4 (2021); 77.4 (2022); 50.6 (2023).
• Money Base (annual percentage change): 217.0 (2019); 81.7 (2020); 38.4 (2021); 35.0 (2022); 30.0 (2023).
• Credit to the private sector (annual percentage change): 173.8 (2019); 571.8 (2020); 158.9 (2021); 74.3 (2022); 40.8 (2023).
• Credit to the central government (annual percentage change): 40.7 (2019); 65.5 (2020); 115.2 (2021); 138.7 (2022); 112.5 (2023).
• Money supply (in percent of GDP): 18.6 (2019); 17.0 (2020); 17.3 (2021); 18.1 (2022).
• Credit to the private sector (in percent of GDP): 5.9 (2019); 6.7 (2020); 6.6 (2021).
• Official Exchange rate (ZWL:USD exchange rate, annual average): 8.2 (2019); 51.3 (2020); 88.6 (2021).
• Official Exchange rate (ZWL:USD exchange rate, end-of-period): 16.8 (2019); 81.8 (2020); 107.0 (2021).
• Central government (percent of GDP):
  • Revenue and grants: 12.3 (2019); 15.4 (2020); 17.2 (2021).
  • Expenditure and net lending: 13.5 (2019); 14.9 (2020); 18.7 (2021); 18.9 (2022); 18.8 (2023).
  • Overall balance: -1.3 (2019); 0.5 (2020); -1.5 (2021); -1.9 (2022); -1.2 (2023).
  • Primary balance: -0.9 (2019); 0.8 (2020); -1.1 (2021); -1.2 (2022).
• Balance of payments (US$ millions):
  • Exports of goods and services: 5,267 (2019); 5,263 (2020); 6,448 (2021); 6,607 (2022); 6,818 (2023).
  • Imports of goods and services: 5,398 (2019); 5,489 (2020); 6,771 (2021); 7,127 (2022); 7,588 (2023).
  • Current account balance (excluding official transfers): 920 (2019); 1,096 (2020); 1,170 (2021); 866 (2022); 413 (2023).
  • Gross international reserves: 151 (2019); 34 (2020); 716 (2021); 540 (2022).
  • Months of imports of goods and services: 0.3 (2019); 0.1 (2020); 1.3 (2021); 0.9 (2022).
• Public debt (US$ millions):
  • Consolidated public sector debt: 10,415 (2019); 14,915 (2020); 17,855 (2021); 18,373 (2022); 19,031 (2023).
  • Public and publicly guaranteed external debt: 9,609 (2019); 14,485 (2020); 17,290 (2021); 17,468 (2022); 17,594 (2023).
  • Of which: Arrears: 6,406 (2019); 10,022 (2020); 12,722 (2021); 12,912 (2022); 13,102 (2023).
  • PPG external debt (percent of GDP) from DSA: 87.5 (2019); 106.6 (2020); 86.6 (2021); 73.8 (2022); 70.6 (2023).

IMF Executive Board, Press Release No. 22/88, March 24, 2022.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• IMF COVID-19 Hub
• Policy Tracker
• Financial Assistance
• Questions & Answers
• Zimbabwe and the IMF
• IMF Policy Advice -- A Factsheet
• Special Drawing Rights (SDRs) -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home