Press Release No. 05/151

A staff mission from the International Monetary Fund (IMF) visited Zimbabwe during June 13-25, 2005 in the context of the 2005 Article IV Consultation discussions and ahead of the Fund Executive Board's consideration of the issue of Zimbabwe's compulsory withdrawal from the IMF¹. It made the following statement:

"We had cordial meetings with Zimbabwe's economic team led by Finance Minister Herbert Murerwa and Reserve Bank of Zimbabwe (RBZ) Governor Gideon Gono and want to thank the authorities for facilitating our work. Our discussions focused on policies to place Zimbabwe on a path to achieve sustained growth, low inflation, and improving living standards. Output is expected to decline sharply this year, in part due to the continued difficulties in agriculture-which have been exacerbated by drought-and the intensification of foreign exchange shortages.

"The mission projects that, on the basis of present policies, the budget deficit will increase markedly in 2005, partly due to the cost of higher food imports, interest payments and higher pension costs. Together with the RBZ's substantial producer and credit subsidies, these deficits would fuel a sharp increase in money supply, and hence inflation, by end-2005. The authorities indicated their desire to address these problems by taking measures to contain further increases in the budget deficit. The macroeconomic outlook is further clouded by the gravity of the food security situation and implementation of "Operation Restore Order," which threatens to worsen shortages, contribute to lower growth, and aggravate inflation pressures.

"As indicated in previous rounds of discussions, the mission stressed that the magnitude of the economic problems confronting Zimbabwe calls for a comprehensive policy package that should include decisive action to lower the fiscal deficit, a tightening of monetary policy, and steps to establish a unified, market-determined exchange rate. The package should also include structural reforms, such as the removal of administrative controls, to ease shortages and restore private sector confidence.

"A rebuilding of relations with the international community is a critical part of the effort to reverse the economic decline. We hope the authorities will work more closely with us to formulate and implement such a policy package, which would help stabilize the economy and improve the welfare of the Zimbabwean people."

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¹ As of June 20, 2005, Zimbabwe's arrears to the Fund amounted to SDR 201 million (US$295 million). Compulsory withdrawal is the last step in a series of escalating measures that the IMF applies to members that fail to meet their obligations under the Articles of Agreement. On February 16, 2005 the Executive Board decided to defer for six months consideration of Zimbabwe's compulsory withdrawal, providing the country with another chance to strengthen cooperation with the Fund in terms of policies and payments.