'Minerals' price slump affects economy'

HARARE - Zimbabwe’s economic growth may be affected by a slump in mineral prices as a result of an uncertain external environment, the International Monetary Fund (IMF) warned.

The Bretton-Woods Institution recently said the country faces serious medium-term challenges and achieving sustainable, inclusive growth will require strong macroeconomic and financial policies, an enabling business environment, and normalised relations with creditors.

“The main near-term risks relate to further fiscal under performance and uncertainty in the external environment which could see lower commodity prices, particularly for key mineral export,” said the IMF in its article 1V consultation with Zimbabwe report.

Other risks cited by the IMF relate to policy inconsistencies which could affect investment and financial sector vulnerabilities — specifically, liquidity shortages and disorderly unwinding of troubled banks.

This comes as the economy is slowly sliding into recession characterised by low aggregate demand, deflation, acute liquidity crisis and massive company closures.

The World Bank recently slashed Zimbabwe’s GDP forecast for this year from the 6,1 percent predicted by government to 2,0 percent citing overall disappointing growth on first quarter weakness in most sectors of the economy.

With risks on the downside, IMF directors who conducted the study highlighted the need to restore fiscal and external sustainability and reduce financial vulnerabilities.

They emphasised that achieving sustainable and inclusive growth requires determined and comprehensive reforms.

At the moment, Zimbabwe’s 2014 budget targets are in doubt on the back of a weaker economic outlook according to the IMF.

The global financier said the hard-pressed nation will not realise the $4,12 billion, including $96 million in diamond dividends which was the total revenue target for 2014.

“The authorities’ 2013 budget was based on prudent revenue projections, including diamond dividends.

“Unlocking this revenue source will require full and prompt implementation of the measures announced in the 2014 budget,” said IMF.

According to the IMF report, the measures include disallowing royalties as a deductible expense against taxable income, withholding a 2,5 percent depletion fee, withholding royalties on diamond sales (15 percent of gross sales), and withholding 15 percent of gross proceeds from diamond sales as interim (“special”) dividends for direct payment to Treasury.

IMF also said the implementation of the 15 percent special dividend withholding has been suspended for now, pending further consultations with mining companies, which are resisting it on grounds that it would reduce their ability to invest in new production.

However, government awaits consultations and is keen to start collecting these dividends.

Zimbabwe’s economy declined by as much as 40 percent in the decade before 2009, only rebounding to average seven percent growth between 2009 and 2011 after the country dumped its inflation-ravaged currency for the United States dollar and South Africa’s rand and President Robert Mugabe agreed to share power with the opposition.

    Comments (3)

    It is most unfortunate that our gvt will not listen to any sensible advice from the IMF. Bad governance , corruption & policy inconsistencies are now a terrible,disastrous habit in our government.

    HAPANA CHINOBUDA - 21 July 2014

    Antother doom and gloom merchent!

    godfrey gudo - 21 July 2014

    Obviously, only the gullible will expect something positive from our government.There are just never any prophets of doom as everything is clear for everyone to see for themselves.

    OBVIOUS - 21 July 2014

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