Zimbabwe—IMF Management Completes Second Review of Staff-Monitored Program
The authorities continue to see the SMP as a crucial tool in building a strong track record toward normalizing their relationship with creditors, mobilizing development partners' support, and for supporting macroeconomic policies and laying the foundation for addressing Zimbabwe's deep seated structural issues.
Zimbabwe's economic and financial conditions remain. Growth has slowed, unemployment is rising and economic activity is increasingly shifting to the informal sector. The external position remains precarious. In light of their arrears to creditors, low commodity prices, and an appreciating U.S. dollar, external inflows remain highly constrained, the levels of international reserves very low, and the country is in debt distress. Risks to the outlook stem mainly from fiscal challenges, weak global commodity prices, adverse weather conditions, and policy implementation in a difficult political environment. However, further advancing the ongoing reforms and reengaging with the international community could reopen Zimbabwe's access to financial support and lift the economic outlook. The Zimbabwean authorities remain committed to implementing sound macroeconomic and structural policies.
Despite increasing economic and financial difficulties, the Zimbabwean authorities have demonstrated strong commitment to the program by taking important steps to advance their macroeconomic and structural reforms. They have made significant progress in implementing their reform agenda, particularly in financial sector and labor-market reforms. In addition, they are starting to take steps to rationalize public expenditure and reduce public sector employment costs. The policy reform agenda for the remainder of the SMP consists of: (a) mitigating the impact of this year's adverse shocks on the external position and growth; (b) improving the investment climate; (c) restoring confidence in the financial sector; and (d) garnering support for a strategy to clear arrears to the international financial institutions (IFIs).
The authorities have intensified their reengagement with the international community, with the immediate objective of resolving arrears with the IFIs. They have developed a strategy for clearing Zimbabwe's external arrears to IFIs, for which they will seek the support of creditors and development partners at a meeting on the sidelines of the October 2015 Annual Meetings of the IMF and World Bank in Lima, Peru.
Going forward, strong support at the Lima meeting, a successful completion of the SMP and a deepening of ongoing reforms would set the stage for advancing the reengagement process with the IFIs and bilateral creditors.
IMF staff will continue to support Zimbabwe's economic reforms and their pursuit towards arrears clearance and debt relief. Staff will remain engaged with the authorities to monitor progress in the implementation of their economic program, and will continue providing targeted technical assistance in order to support Zimbabwe's capacity-building efforts and its adjustment and ongoing reform process.