IMF Staff Completes 2024 Article IV Mission to Zimbabwe

IMF News, June 27, 2024

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IMF staff team led by Mr. Wojciech Maliszewski conducted a second mission to Harare during June 18-27, 2024 to conclude the 2024 Article IV Consultation.
Press Release No. 24/248.
End-of-Mission statements convey preliminary findings and do not necessarily represent the views of the IMF’s Executive Board.

Growth expected to decelerate to about 2 percent in 2024 (from 5.3 percent in 2023) due to a devastating El Niño-induced drought and higher import bills worsening the balance-of-payments outlook.
Growth expected to recover strongly in 2025 to about 6 percent, supported by a rebound in agriculture and ongoing capital projects in manufacturing.
Assuming macro-stabilization is sustained, cumulative inflation in the remainder of the year is projected at about 7 percent.

The Reserve Bank of Zimbabwe (RBZ) introduced in April 2024 a new currency—the Zimbabwe Gold (ZiG).
The ZiG official exchange rate has so far remained stable, ending a bout of macroeconomic instability in the first 3 months of the year (when the Zimbabwean dollar depreciated by about 260 percent).
Mission welcomes improvement in monetary policy discipline and recommends further refinements to the policy framework.
Policy recommendations:
- Stabilize the ZiG nominal exchange rate against a suitable basket of currencies (accounting for the dominant role of the USD in the economy).
- Control base money growth: for now through unremunerated Non-Negotiable Certificates of Deposits (NNCDs), but over time through indirect (interest-rate-based) monetary instruments to increase the attractiveness of the new currency.
- Determine the exchange rate in a deeper market to provide relevant information for monetary policy decisions by identifying and removing impediments to FX market functioning to promote price discovery.

Transfer of past debt obligations related to the RBZ’s quasi-fiscal operations (QFOs) to the Treasury was an important step to strengthen financial discipline.
Enhanced coordination between the RBZ and the Ministry of Finance, Economic Development and Investment Promotion (MoFEDIP) on macro-policies and liquidity management is welcomed.
The mission assessed that:
- Cost of servicing the QFO-related debt and T-bills (including about 8 percent of GDP issued last year), combined with weaker-than-expected revenues and drought-related spending, opened a sizeable financing gap in the 2024 budget.
- The financing gap needs to be closed in a way that does not undermine the monetary policy stance.
The mission notes ongoing work to identify measures to close the gap and stands ready to provide support.

Strengthened governance for the newly constituted Mutapa Investment Fund is key for stabilization.
Recommended steps:
- Ensure the fund’s mandate is clearly defined and aligned with the National Development Strategy.
- Enhance transparency and ensure full integration in the budget process (Mutapa’s annual operating budget, capital investment, asset sales, and borrowing plans should be subject to approval by the MoFEDIP).
- Adhere to highest standards of corporate accountability.
Note: financial management of public entities is regulated by the Public Finance Management Act.

Discussed structural reforms to improve the business climate, strengthen economic governance, and reduce corruption vulnerabilities.
Observations:
- Zimbabwe’s economic governance has significant weaknesses and corruption poses risks to macroeconomic performance.
- Addressing these weaknesses is key to promoting sustained and inclusive growth.

International reengagement is critical for debt resolution and arrears clearance to open access to external financing.
Authorities' reengagement efforts through the Structured Dialogue Platform are key for attaining debt sustainability and accessing concessional support.
The mission encourages continued adherence to high standards of public debt transparency, including appropriate treatment of recently issued debt in public and publicly-guaranteed debt statistics.
IMF engagement and conditionality on financial support:
- IMF provides policy advice and extensive technical assistance in revenue mobilization, expenditure control, financial supervision, debt management, economic governance and anti-corruption, and macroeconomic statistics.
- IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation—based on the IMF’s Debt Sustainability Analysis (DSA)—and official external arrears.
- An IMF 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.

IMF staff held meetings with:
- Minister of Finance, Economic Development and Investment Promotion Honorable Professor Mthuli Ncube; Deputy Minister Honorable David Mnangagwa; Permanent Secretary Mr. George Guvamatanga; RBZ Governor Dr. John Mushayavanhu; Dr. Martin Rushwaya, Chief Secretary to the President and Cabinet; other senior government and RBZ officials; honorable members of Parliament; and representatives of the private sector, civil society, and Zimbabwe’s development partners.
Mission statement: “The IMF staff would like to thank the Zimbabwean authorities and other stakeholders for constructive discussions and support during the 2024 Article IV consultation process.”

Source: IMF press release — IMF Staff Completes 2024 Article IV Mission to Zimbabwe (June 27, 2024).