IMF warns of political instability impact

HARARE - The International Monetary Fund has expressed reservations over Zimbabwe’s political situation, warning a cloud of uncertainty hanging over the country was undermining economic recovery following a decade of cumulative decline.

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

Market watchers contend that the key risk to Zimbabwe’s economy emanates from politics.

Although the exact timing remains uncertain, there will be an election in the next six months, the lead-up to which is likely to cause a rise in the risk of political instability, potentially harming economic activity.

“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.

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.

In its review of Zimbabwe’s economy, the African Development Bank (AfDB) early this year said the country’s projected economic growth in 2012 depends on a stable political environment which could be undermined if a contentious general election takes place.

“The on-going implementation of the indigenisation and economic empowerment laws and the expected national elections in 2012 continue to weaken external investor confidence,” said AfDB.

“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.”

IMF also said a sharper recession in Europe and deceleration in China would affect commodity prices and activity in South Africa, a main source of remittances and investment to Zimbabwe.

“Policy risks include the potentially destabilising effects of the indigenisation policy on the banking system and its chilling effect on investment,” said IMF.

Other risks Zimbabwe face include 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 that Zimbabwe’s growth potential is higher than the baseline projections, but unlocking such potential requires decisive actions."

“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.” - John Kachembere

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