## Press Release: IMF Approves Stand-By Credit for Zimbabwe

_IMF News, June 1, 1998_

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## Bibliographic details
- Published: June 1, 1998

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### IMF Approval and Financing Details
- IMF approved a Stand-By credit for Zimbabwe authorizing drawings of up to SDR 130.75 million (about US$175 million) over the next 13 months in support of Zimbabwe’s 1998 economic reform program.
- Of the total, SDR 39.2 million (about US$52 million) is available immediately.
- Subsequent disbursements will be made on a quarterly basis, subject to Zimbabwe’s meeting performance targets and program reviews.

### Background: External Pressures and Policy Response
- Zimbabwe experienced intense balance of payments pressures during November-December 1997.
- The value of the Zimbabwe dollar fell by nearly 50 percent in local currency terms and foreign reserves were reduced to dangerously low levels.
- Contributing factors:
  - Payment of large compensation benefits to war veterans.
  - Accommodating monetary policy exposing weaknesses in external competitiveness stemming from large and protracted fiscal deficits.
  - Poor tobacco crop and falling gold prices hurting trade performance.
  - Uncertainties over land reform and fears of a drought weakening market sentiment for the currency.
- Government corrective measures toward the end of 1997:
  - Fiscal measures to cover fully the cost of veterans’ payments.
  - Increases in interest rates.
  - Clarification of government intentions on land reform.
- Result: These measures restored a measure of stability to the foreign exchange market.

### The Program for 1998: Objectives and Macroeconomic Targets
- Fundamental goal: Ensure the recent depreciation of the exchange rate translates into a substantial improvement in competitiveness.
- Primary instruments: Fiscal consolidation and monetary restraint.
- Fiscal target: Reduce the budget deficit, excluding grants and privatization proceeds, to 5.5 percent of GDP in 1998.
- Reduce government stock of domestic debt to enable the Reserve Bank to tighten domestic credit and build up foreign reserves without constraining private sector bank credit.
- Inflation and outlook:
  - Fueled by recent exchange rate depreciation, the 12-month rate of inflation rose markedly to 26 percent during the first four months of 1998 on an end-of-period basis.
  - Projected to decline to 19 percent by the end of 1998.
  - This inflation profile is expected to retain much of the recent gains in international competitiveness and achieve a significant narrowing in the external current account deficit in 1998.

### Structural Reforms
- Privatization progress:
  - Privatization of public enterprises began in earnest in 1997 with several larger parastatals sold.
  - Divesture program accelerated by advancing sale of government shares in public and private companies.
  - Proceeds expected to total the equivalent of nearly 2 percent of GDP in 1998.
  - Government decided to partially privatize the Post and Telecommunications Corporation at a later date.
- Land reform:
  - Still in early design stages.
  - Redistribution of land will proceed within the confines of the law; pace governed by availability of budgeting resources.
  - Land redistribution to be undertaken in an orderly and transparent manner to protect agricultural output and the welfare of workers on the farms to be acquired.

### Social Safety Net Measures
- Recent sharp depreciation of the Zimbabwe dollar and large price increases for basic food items exacerbated declines in real incomes and employment.
- Near-term government measures:
  - Released additional maize from the strategic grain reserve to help alleviate immediate price pressures.
  - Provision in the current budget for transfer of food to the most needy.
  - Budgetary contingency reserve available to meet emergency requirements.
  - Allocations for social spending were raised in the current budget and have been protected from recent budgetary cuts.
- Medium-term approach: Broad-based economic growth and price stability as keys to effective poverty alleviation.
- Land reform implementation expected to directly assist the poorest and most deprived, particularly those in high-density rural areas.

### The Challenge Ahead and Financing Needs
- Immediate task: Replenish Zimbabwe’s foreign exchange reserves to at least 1.5 months of imports by the end of 1998.
- Further reserve accumulation planned in 1999 and beyond.
- A substantial financing gap remains in 1998:
  - Could be partially filled by disbursements from multilateral sources.
  - The remainder to be mobilized through bilateral donor support, primarily sought from Zimbabwe’s bilateral donors in the context of the Consultative Group.

### IMF Membership and Current Use of IMF Resources
- Zimbabwe joined the IMF on September 29, 1980.
- Quota is SDR 261 million (about US$349 million).
- Outstanding use of IMF financing currently totals SDR 270 million (about US$361 million).

### Selected Economic Indicators (as presented)
- Real GDP (percent change):
  - 1997*: 3.7
  - 1998**: 3.0
  - 1999***: 5.3
  - 2000***: 5.5
  - 2001***: 5.7
- Consumer prices (end of period) (percent change):
  - 1997*: 20.1
  - 1998**: 18.6
  - 1999***: 8.1
  - 2000***: 4.5
- Overall fiscal balance, excluding grants (deficit -) (percent of GDP):
  - 1997*: -8.3
  - 1998**: -5.5
  - 1999***: -4.2
  - 2000***: -3.9
  - 2001***: -2.8
- External current account balance (deficit -) (percent of GDP):
  - 1997*: -9.0
  - 1998**: -4.9
  - 1999***: -4.3
  - 2000***: -2.4
  - 2001***: -1.8
- Gross official reserves (months of imports):
  - 1997*: 0.8
  - 1998**: 1.5
  - 1999***: 1.8
  - 2000***: 2.6
  - 2001***: 2.9
- Sources: Zimbabwean authorities; and IMF staff estimates.
- Footnotes as presented:
  - * Estimate
  - ** Program
  - *** Projected
  - 1 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.

*International Monetary Fund press release, June 1, 1998.*

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9820_