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Zimbabwe – IMF’s diagnosis after Article IV consultations

The International Monetary Fund (IMF) reported on June 23 that it has concluded annual Article IV consultations with Zimbabwe. The multilateral organisation indicated that Harare has expressed a commitment towards implementing the policies and reforms agreed on by the Staff-Monitored Programme (SMP) set to end in June this year. However, the Fund acknowledged that progress under the SMP “has been mixed, reflecting in part a long electoral process and a protracted post-election transition. Discussions of the first and second reviews under the SMP are nearing conclusion.”

The IMF warned that fiscal targets for 2014 are in jeopardy due to sluggish economic growth and a 14% increase in the public wage bill. The state has identified various (undisclosed) revenue and expenditure measures to cope with this while planned fiscal consolidation will help rebuilding fiscal and external buffers. Regarding the financial sector, the IMF reported that non-performing loans (NPLs) reached 16.6% of the banking industry’s loan book by March 2014. The Fund noted that recapitalisation of the interbank market and Reserve Bank of Zimbabwe (RBZ) is underway.

Regarding external debt, the IMF called on Harare to “engage in coordinated discussions” with the World Bank and international financial institutions (IFIs), “to respect the preferred creditor status of IFIs, avoid selective debt service, and increase payments to the Fund’s Poverty Reduction and Growth Trust (PRGT) as capacity to repay improves.” Strong macroeconomic policies and a comprehensive arrears clearance framework with the support of development partners are seen as essential to addressing Zimbabwe’s debt problems.

As could be expected, the IMF Executive Board made a flurry of recommendations: 1) implement the SMP; 2) implement a revised fiscal plan for 2014; 3) reduce public expenditure on payrolls; 4) strengthen public financial management; 5) rebuild foreign reserves; 6) limit non-concessional lending; 7) enhance financial sector stability; 8) address structural bottlenecks to boost competitiveness; 9) reduce uncertainty regarding the indigenisation policy; and 10) implement measures to boost transparency in the diamond mining sector.

WHY DO WE CARE? The IMF statement does not make for easy reading: mixed results from the SMP, a weak fiscal situation, and no apparent tangible progress in securing external debt relief. Macroeconomic projections accompanying the IMF statement looks at economic growth of only 3.1% this year, a current account deficit near 28% of GDP, a meagre rise in foreign reserves, and external debt increasing almost 20% to $12.7bn. The sentiment behind these figures is not too dissimilar from our own short term outlook, suggesting that diagnosing Zimbabwe’s ills is not an overtly difficult task. The fly in the ointment, however, is the stubbornness of the political machine to take the medicine needed to heal the Zimbabwean economy. 

Analyst: Christie Viljoen

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