Zim economy in precarious state: IMF

HARARE - The International Monetary Fund (IMF) says Zimbabwe must consolidate its fiscal position and eliminate the primary budget deficit by end-2015 if the country hopes to revive its economy.

In a statement released last week, the international financier said the southern African country’s economic situation remains difficult.

“The external position is precarious, with low international reserves, a large current account deficit, an overvalued real exchange rate, and growing external arrears.

“Credit and deposit growth have slowed down sharply, liquidity conditions are tight, and the banking system remains weak,” it said.

“Fiscal pressures arose in early 2014 due to higher-than-budgeted wage increases and revenue shortfalls as the economy weakened,” added the Bretton Woods institution.

According to IMF, the post-hyperinflation rebound has ended.

“Gross Domestic Product (GDP) growth decelerated from 10,5 percent in 2012 to 4,5 percent in 2013, due to adverse weather conditions, weak demand for key exports, and election-year uncertainty,” said IMF adding that the outlook in 2014 is for continued low growth of three percent.

Figures from Zimstat show that annual inflation dipped below zero recently, but stood at 0,1 percent in September 2014.

The Bretton Woods institution indicated that strong macroeconomic policies and debt relief, in the context of a comprehensive arrears clearance strategy supported by development partners, would be essential to address Zimbabwe’s developmental needs.

Zimbabwe’s external debt currently stands at $10 billion.

“A successful implementation of the Staff-Monitored Programme (SMP) would be an important stepping stone toward Zimbabwe’s normalising relations with the international community,” said the IMF.

The International money lender last month concluded its third review of Zimbabwe’s SMP and has approved a successor to the programme that will run from for 15 months from November this year.

“The main objective of the new programme is to strengthen the country’s external position, as a prerequisite for arrears clearance, resumption of debt service, and restored access to external financing,” said the IMF.

Economic experts, however, say that key risks to the new programme stem from global commodity price shocks, domestic policy slippages, gaps in policy implementation capacity, and lagging progress in resolving external arrears.

“While Zimbabwe faces these risks with practically no buffers, the successor SMP aims to rebuild these buffers and strengthen the country’s resilience to shocks,” said IMF.

An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic programme. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.

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