HARARE - Strengthening auditing standards and efficacy of corporate boards, among other measures, could improve the medium-term outlook of Zimbabwe’s financial sector, the African Development Bank (AfDB) said.

Damoni Kitabire, an economist with AfDB’s Zimbabwe office, said there is need for government to address protection of minority shareholders, prevalence of trade barriers and the issue of property rights and gross national savings, in his presentation on the state of Zimbabwe’s financial sector to the Financial Traders Association in Vumba a fortnight ago.

Kitabire said the country’s economic growth was largely expected to settle at five percent anchored on improved quality of government expenditure and reforms, increased overall productivity and reduction of financial sector vulnerabilities.

He further said that there was need for improved infrastructure and business environment.

Katibire said vulnerabilities still persisted in the financial sector which included under-capitalised banks, high credit risk, poor liquidity, absence of instruments and a formal interbank market, adding that the ongoing indigenisation programme could be destabilising to the sector.

He said the five biggest problems the financial sector faced — in order of them being a hindrance — were access to financing, policy instability, inadequate supply of infrastructure, inefficient government bureaucracy and corruption.

Katibire’s assertions come as the International Monetary Fund (IMF) has expressed reservations over Zimbabwe’s political situation, warning that a cloud of uncertainty hanging over the country was undermining its economic recovery.

In its staff report for the 2012 Article IV consultation released in September, the IMF said the country’s four straight years of strong growth was under threat.

“The main risks to the outlook are the possible resurgence of political instability ahead of the elections (expected in 2013) and a deeper global downturn,” said the Bretton Woods institution.

“Policy risks include the potentially destabilising effects of the indigenisation policy on the banking system and its chilling effect on investment,” said IMF, adding that the other risks Zimbabwe faced included fiscal slippages and financial sector instability.

“Low external reserves and lack of a lender-of-last-resort mean Zimbabwe faces these risks with minimal buffers,” IMF noted.

“Achieving higher sustained growth will require a vigorous programme of reforms focused on strengthening public financial management, improving control over the payroll, raising the productivity of government expenditure, reducing financial sector vulnerabilities, addressing infrastructure bottlenecks, increasing competitiveness, and improving the business climate.”

Finance minister Tendai Biti revised the 2012 economic growth to five percent from the initial 9,4 percent projected, reflecting the impact of adverse weather conditions on agriculture, erratic electricity supply, and tight liquidity conditions.

Early this year, AfDB said the country’s projected economic growth in 2012 depended on a stable political environment which could be undermined if a contentious general election takes place.

“The ongoing implementation of the indigenisation and economic empowerment laws and the expected national elections in 2012 continue to weaken external investor confidence,” the regional institution said.

“The achievement of the 2012 projections is therefore subject to a stable political and economic environment ... and continued firming of the international commodity prices or increase in output.”

In July the Reserve Bank of Zimbabwe raised the minimum capital to $100 million for commercial banks, up from $12,5 million as part of measures to strengthen the financial services sector. - Eric Chiriga