## IMF Executive Board Concludes 2017 Article IV Consultation with Zimbabwe

_IMF News, July 7, 2017_

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## Bibliographic details
- Published: July 7, 2017

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### Overview
- On July 5, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.
- Zimbabwe’s economy is facing difficulties driven by a severe drought, slow reform momentum, high expenditure levels since late 2015, and limited access to foreign inflows.
- Fiscal imbalances have become unsustainable and are being financed by rising domestic borrowing, contributing to cash shortages and the introduction of capital and current account controls and quasi-currency instruments in the dollarized economy.
- An overvalued real exchange rate is hurting external competitiveness.

### Fiscal, Monetary, and Financial Conditions
- Expansionary fiscal stance, curtailed net capital flows, and declining investor confidence have resulted in cash shortages.
- Budgetary operations are crowding out the private sector; expenditure is tilted towards employment costs and unsustainable agricultural support, inhibiting investment in infrastructure and social outlays.
- Ongoing deficit financing modalities, particularly credit from the central bank, are unsustainable and pose inflationary risks.
- Marked increase in public debt is crowding out private activity, aggravating liquidity shortages, and exacerbating debt distress.
- Dollar scarcity has led to administrative controls on current and capital account transactions.
- Bank asset concentration on non‑liquid central bank deposits and treasury bills has increased financial sector fragility; extensive use of quasi‑currency instruments exacerbates fragility.
- Credit to the private sector remains subdued; some domestic banks face increasing risks emanating from fiscal imbalances.

### Structural Reforms and Reengagement
- Some progress has been made on reforms to improve the business climate.
- Limited progress remains on:
  - Implementation of laws applicable to non-indigenous investors.
  - Improvements in the functioning of state-owned enterprises.
  - Upgrades in public financial management, governance, and accountability.
- Zimbabwe has settled all overdue obligations to the PRGT but has yet to reach agreement with the World Bank and other multilateral institutions on the settlement of arrears.
- Reengagement with the international community is facing delays; determined reform implementation and reengagement are key to unlocking external financing, fostering investment, and resolving the debt overhang.
- Directors cautioned against clearing arrears using modalities which exacerbate debt problems.

### Executive Board Assessment and Policy Recommendations
- Directors stressed the urgency of fiscal consolidation to restore policy credibility and economic stability.
- Public sector employment costs are at an unsustainable level, constraining social and infrastructure spending.
- Authorities are encouraged to:
  - Engage only in well‑targeted, cost effective, and properly budgeted support to the agricultural and other productive sectors.
  - Enhance tax revenues.
  - Strengthen public financial management and reform state‑owned enterprises.
  - Bolster the regulatory and supervisory framework for the financial sector.
  - Close loopholes in the AML/CFT framework.
  - Roll back exchange controls.
  - Implement comprehensive actions to provide a level playing field for investors through consistent and transparent implementation of laws, and measures to combat corruption.
- Directors underscored the need to restore credibility of the currency regime and safeguard the financial sector.
- Directors welcomed Zimbabwe’s clearance of arrears to the IMF and encouraged an early resolution of arrears to other IFIs and bilateral creditors.

### Growth Outlook
- Growth in 2017 is expected to be supported by a strong performance in agriculture mainly due to exceptional rains.
- Medium‑term economic activity is projected to remain subdued pending adjustment and reform to restore fiscal and external sustainability and achieve growth potential.

### Key Statistics — Zimbabwe: Selected Economic Indicators, 2013–16
- Output
  - Real GDP Growth (annual percentage change): 2013: 5.3; 2014: 2.8; 2015: 1.4; 2016 (Est.): 0.7
  - Nominal GDP (US$ millions): 2013: 15,224; 2014: 15,834; 2015: 16,072; 2016 (Est.): 16,124
  - GDP deflator (annual percentage change): 2013: 2.9; 2014: 1.2; 2015: 0.1; 2016 (Est.): -0.3
- Inflation (annual percentage change)
  - Consumer price index (annual average): 2013: 1.6; 2014: -0.2; 2015: -2.4; 2016 (Est.): -1.6
  - Consumer price index (end-of-period): 2013: 0.3; 2014: -0.8; 2015: -2.5; 2016 (Est.): -0.9
- Central government (percent of GDP)
  - Revenue and grants: 2013: 24.6; 2014: 23.8; 2015: 23.3; 2016 (Est.): 21.7
  - Expenditure and net lending: 2013: 26.7; 2014: 25.4; 2015: 25.9; 2016 (Est.): 30.8
  - Overall balance (cash basis): 2013: -1.9; 2014: -8.8; 2015: [blank in source]; 2016 (Est.): [blank in source]
- Money and credit (US$ millions)
  - Broad money (M3): 2013: 3,888; 2014: 4,377; 2015: 4,736; 2016 (Est.): 5,638
  - Net foreign assets: 2013: -730; 2014: -693; 2015: -628; 2016 (Est.): -556
  - Net domestic assets: 2013: 5,100; 2014: 5,367; 2015: 5,611; 2016 (Est.): 6,292
- Money and credit (annual percentage change)
  - Domestic credit (net): 2013: 6.2; 2014: 4.2; 2015: 8.8; 2016 (Est.): 19.8
  - Of which: Credit to the private sector: 2013: 3.7; 2014: 4.7; 2015: -2.3; 2016 (Est.): -3.6
- Balance of payments (US$ millions)
  - Current account balance: 2013: -2,375; 2014: -2,395; 2015: -1,495; 2016 (Est.): -662
  - (percent of GDP): 2013: -15.6; 2014: -15.1; 2015: -9.3; 2016 (Est.): -4.1
- Official reserves (end-of-period)
  - Gross international reserves (US$ millions): 2013: 284; 2014: 303; 2015: 339; 2016 (Est.): 310
  - (months of imports of goods and services): 2013: 0.4; 2014: 0.5; 2015: 0.6; 2016 (Est.): 0.5
- Debt (end-of-period)
  - Domestic debt (US$ millions): 2013: 479; 2014: 1,764; 2015: 2,281; 2016 (Est.): 4,006
  - (percent of GDP): 2013: 3.1; 2014: 11.1; 2015: 14.2; 2016 (Est.): 24.8
  - PPG external debt (US$ millions): 2013: 5,389; 2014: 6,407; 2015: 6,613; 2016 (Est.): 7,231
  - (percent of GDP): 2013: 35.4; 2014: 40.5; 2015: 41.1; 2016 (Est.): 44.8

*Press Release No. 17/267, July 7, 2017 — IMF Communications Department.*

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## References

- [The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Zimbabwe and the IMF](http://www.imf.org/external/country/ZWE/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
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_Source: https://www.imf.org/en/news/articles/2017/07/07/pr17267-imf-executive-board-concludes-2017-article-iv-consultation-with-zimbabwe_