IMF Staff Completes 2016 Article IV Consultation Mission to Zimbabwe and the Third and Final Review of the Staff-Monitored Program
An International Monetary Fund (IMF) mission led by Domenico Fanizza visited Harare from February 24 to March 11, 2016 to hold discussions on the 2016 Article IV Consultations and the third and final review under a 15-month Staff-Monitored Program (SMP) approved by Management in October 2014. The discussions covered recent economic developments and the near and medium-term outlook and risks for Zimbabwe; implementation of the policies and reforms under the SMP; and near and medium-term policies that could help remove the hurdles to growth.
At the conclusion of the mission, Mr. Fanizza issued the following statement:
“Economic difficulties have deepened. Zimbabwe cannot wait and needs to act now. The El Niño-induced drought has hit the economy hard. Lower commodity prices and the appreciation of the U.S. dollar have compounded difficulties. Policy action is needed to reverse this trend. Once the SMP is completed successfully–as an initial step toward reform and re-engagement with international partners–a comprehensive and ambitious economic transformation program is needed to revive the Zimbabwean economy and to cement support among international partners.
“The authorities have met all quantitative targets and structural benchmarks under the third and final review of the SMP. Moreover, they have started to develop a medium term economic transformation program, in line with the broader reform agenda presented at the Lima meetings on arrears clearance in October 2015. We believe the essential components of this program should be:
Fiscal discipline is the key priority. Given the lack of resources, the authorities need to keep the cash primary accounts close to balance. This heightens the urgency of re-engagement with the international community. The objective is to unlock financing that could allow Zimbabwe to deal with adverse shocks and plan for much needed social and capital outlays. This will, however not be sufficient. We support the authorities' ambitious plan for shifting resources to much needed infrastructure investment and social outlays by reigning in employment costs. In the financial sector, significant progress has been made but risks remain. It will be important to continue with strong proactive supervision, further reduce nonperforming loans, and deliver on financial inclusion as outlined in the National Financial Inclusion Strategy to reinforce confidence and cement financial stability. Improving the business environment is key. In particular, the consistent and transparent implementation of the indigenisation policy will be critical to attract both foreign and domestic investment by limiting the scope for discretion. This will go a long way to unleash Zimbabwe's growth potential. The bankable land leases which the authorities are finalizing will help to boost productivity and access to financing in agriculture.
“We are encouraged that the authorities plan to clear the outstanding arrears with International Financial Institutions (IFIs), as outlined at the Lima meetings. The successful resolution of Zimbabwe's external payment arrears will be an important step toward normalizing relations with the international financial community and will allow the country to eventually seek a Fund financial arrangement. It will also send strong signals to the international community, reduce the perceived country risk premium, and unlock affordable financing for government and the private sector. This, together with policy reform, will help to achieve sustained economic development through economic transformation, to improve living conditions for the people of Zimbabwe, and to reduce poverty.
“It is envisaged that the Staff Report for the Article IV discussions and the third review under the SMP will be discussed by the IMF's Executive Board in early May.”
The mission met with P. A. Chinamasa, Minister of Finance and Economic Development, D. Mombeshora, Minister of Lands and Rural Resettlement, P. Mupfumira, Minister of Public Service, Labor and Social Welfare, M. J. M. Sibanda, Chief Secretary to the President and the Cabinet, J. P. Mangudya, Governor of the Reserve Bank of Zimbabwe (RBZ), other senior officials, members of the parliament, and representatives of the private sector, civil society and development partners. The team wishes to thank the authorities for their warm hospitality and excellent collaboration.