An International Monetary Fund (IMF) team led by Ana Lucía Coronel visited
Zimbabwe from May 2 to 13, 2017, to hold discussions with the national
authorities, private sector representatives, and civil society in the
context of the 2017 Article IV Consultations. The discussions covered
recent economic developments, the outlook and risks, as well as policies
that could restore economic stability.
At the conclusion of the visit, Ms. Coronel issued the following statement:
“The economy is facing difficulties. A severe drought and slow reform
momentum have led to high expenditure levels since late 2015, despite
subdued revenues. With a difficult external environment limiting access to
foreign inflows, the ensuing large fiscal imbalances are being financed by
domestic borrowing. The expansionary fiscal stance and curtailed net
capital flows have resulted in cash shortages, hampering economic
activities.
“The recovery in agriculture and mining will drive growth this year.
However, maintaining the growth momentum will require action to expedite
the authorities’ plans to reduce the deficit to a sustainable level.
Excessive government spending, if continued, could exacerbate the cash
scarcity, further jeopardize the health of the external and financial
sectors, and, ultimately, fuel inflation.
“Spending pressures stem from high employment costs, government transfers
to support specific economic sectors, and elevated discretionary
expenditure. Action on these three fronts, while safeguarding social
outlays, is therefore crucial. Reducing the wage bill could involve
reviewing allowances and benefits and evaluating the size of the civil
service with a view to eliminating non-essential posts. Government
interventions to support agriculture, while understandable, could be
redesigned with the aim of maximizing the benefits on production while
minimizing the risks to the public-sector balance sheet. Reinforcing the
government’s efforts to curtail non-priority spending is also pressing.
“Restoration of confidence is essential for attracting the necessary dollar
inflows to the economy. Refraining from central bank financing of the
deficit and containing the issuance of debt and quasi-currency instruments
is vital. Furthermore, the financial sector should restore its role of
intermediating resources in the economy by channeling deposits to
productive credit rather than financing fiscal operations.
“The team recommends taking action to unleash the potential of the private
sector and ensure that growth benefits the most vulnerable segments of the
population. Building on the progress already achieved, the government is
encouraged to demonstrate that Zimbabwe is open for business. This will
include enhancing efforts to tackle corruption, encouraging private sector
investment, allowing the market to determine prices, promoting labor
flexibility, and creating a stable legal and regulatory framework to reduce
policy uncertainty. Moreover, there is room for enhancing domestic revenue
mobilization, boosting transparency in the mining sector, and improving
governance in public enterprises to strengthen the country’s fiscal
position.
“The team stands ready to continue to work with the Zimbabwean authorities
to address their policy challenges. The Executive Board of the IMF is
expected to consider the staff report for Zimbabwe’s 2017 Article IV
Consultations in early July. The team wishes to thank the authorities for
their hospitality and constructive cooperation.”
