IMF Staff Concludes Article IV Mission to Zimbabwe

IMF News, December 15, 2022

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IMF staff team led by Dhaneshwar Ghura conducted a mission to Harare during December 1–15, 2022, in the context of the 2023 Article IV Consultation.
Press Release No. 22/434.
IMF staff held meetings with Minister of Finance and Economic Development Honorable Professor Mthuli Ncube; Permanent Secretary Mr. George Guvamatanga; Reserve Bank of Zimbabwe Governor Dr. John Mangudya; Deputy Chief Secretary to the President and Cabinet Mr. Willard Manungo; other senior government and RBZ officials; representatives of the private sector, civil society, and Zimbabwe’s development partners.

Real output growth of 8.5 percent in 2021, reflecting resilience and the government’s swift COVID-19 response supporting businesses, livelihoods, and the health sector.
Real GDP growth is expected to decline to about 3.5 percent in 2022 due to renewed domestic and external shocks.
Identified shocks adversely affecting economic and social conditions: inflation surge, erratic rainfall, electricity shortages, and Russia’s war in Ukraine.
Currency and price pressures emerged earlier in 2022 largely owing to a spike in broad money growth and an official exchange rate misaligned with market fundamentals; these pressures are subsiding.
Annual inflation increased to 285 percent in August 2022 and has been decelerating since.
Uncertainty remains high; the economic outlook will depend on the implementation of key policies and the evolution of external shocks.

Authorities have taken actions to stabilize the local foreign exchange market and lower inflation.
Swift tightening of monetary policy, greater official exchange rate flexibility, and a prudent fiscal stance have contributed to narrowing premia in the parallel foreign exchange market.
Authorities identified large payments to suppliers, resulting from over-invoicing, as a source of pressures on the parallel market; responses include launching value-for-money audits and introducing measures to strengthen procurement regulations.
The IMF provides extensive technical assistance in revenue mobilization, expenditure control, monetary and exchange rate policy, banking sector, debt management, governance, and macroeconomic statistics.
Zimbabwe cleared its outstanding arrears to the IMF in late 2016 and has been a Fund member in good standing since.

Accelerate the liberalization of the FX market, including through the removal of restrictions on the exchange rate at which banks, authorized dealers, and businesses transact.
Address the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures.
Maintain an appropriately tight monetary policy stance to durably restore macroeconomic stability and ensure social stability.
Restore the effectiveness of monetary policy, including through:
- the use of appropriate interest-bearing instruments to mop up liquidity, and
- winding down the use of gold coins.
Maintain a prudent fiscal stance.

Fiscal policy should aim at containing the deficit in line with available non-inflationary financing and creating fiscal space for critical spending by:
- mobilizing additional revenues, based on tax policy reforms;
- scaling back non-priority outlays; and
- strengthening public finance management.
Strengthen financial oversight of state-owned enterprises (SOEs) by the Treasury to minimize fiscal risks.
In the context of a tight monetary policy, enhance regulatory oversight to ensure financial sector resilience.
Address remaining Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) weaknesses to strengthen banks’ resilience and effectiveness.
Implement reforms to economic institutions and the governance and anti-corruption frameworks to strengthen foundations for private sector development and inclusive growth.

Ensuring durable macroeconomic stability and revitalizing structural reforms would support Zimbabwe’s National Development Strategy 1 (2021-2025).
International reengagement remains critical for debt resolution and access to external financial support.
Authorities have adopted an Arrears Clearance, Debt Relief and Restructuring strategy; continued token payments to external creditors; and launched a Dialogue Platform to foster discussions among various stakeholders.
The IMF is precluded from providing financial support to Zimbabwe due to official external arrears and unsustainable debt. A Fund financial arrangement would require:
- a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; and
- a reform plan consistent with durably restoring macroeconomic stability, enhancing inclusive growth, lowering poverty, and strengthening economic governance.

The views expressed are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
IMF staff thanked the Zimbabwean authorities and other stakeholders for constructive discussions and support during the 2023 Article IV consultation mission.

IMF Staff Concludes Article IV Mission to Zimbabwe — Press Release No. 22/434, December 15, 2022