An International Monetary Fund (IMF) staff mission, led by Mr. Alfredo Cuevas, met with the Zimbabwean authorities in Harare during March 12-26, 2014, to hold discussions on the 2014 Article IV Consultation and the combined first and second reviews under the Staff-Monitored Program (SMP).1 The program was approved by IMF Management in June 2013 and extended in December 2013 (see Press Releases No. 13/174 and No. 14/09). Ann-Marie Gulde-Wolf, Deputy Director and Domenico Fanizza, Assistant Director of the African Department also participated in the mission discussions.
The IMF team held productive discussions with Zimbabwe’s Chief Secretary in the Office of the President and Cabinet Misheck Sibanda, Finance Minister Patrick Chinamasa, Mining Minister Walter Chidhakwa, Indigenization Minister Francis Nhema, Advisor to the President Timothy Stamps, acting Governor of the Reserve Bank of Zimbabwe (RBZ) Charity Dhliwayo, and other senior government officials. The mission team expresses its gratitude to the Zimbabwean authorities for the frank and high quality discussions during this visit; and also thanks the representatives of labor, business, and civil society, as well as development partners, who made time to meet with us.
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 implementation of other policies to restore fiscal and external sustainability, enhance financial sector stability, and unlock the country’s potential for sustained growth and poverty reduction.
In recent years Zimbabwe’s economy expanded following more than a decade of decline that culminated in hyperinflation; but the rebound phase of its recovery is over. Growth decelerated in 2013, reflecting the impact of adverse weather conditions, weak prices for key exports, competitive pressures, low liquidity, and election-year uncertainty. Real GDP in 2013 is estimated at just above 3 percent, sharply down from 10½ percent in 2012. The 12-month inflation rate decelerated from 2.9 percent end-2012 to 0.3 percent at end-2013 (and further -0.5 percent in February 2014), reflecting weak domestic demand and the depreciating South African rand. The external account deficit widened in 2013, and reserves remain significantly below adequate levels. Fiscal policy in 2013 was challenged by election-related spending pressures and higher-than-budgeted employment costs.
The macroeconomic environment is expected to remain challenging in 2014, and the outlook is for continued moderate growth. Achieving Zimbabwe’s fuller growth potential over the medium term depends on pursuing strong macroeconomic policies, including by building up fiscal and external buffers and increasing budgetary resources going to non-personnel related spending, and implementing structural reforms to foster investment, improve the business climate, and strengthen governance and institutions, including by increasing the transparency of the minerals regime. It will also be necessary to engage with the country’s creditors to work towards a solution to the long-standing debt arrears problem. Downside risks to the outlook include the possibility of further weakening of export prices, a tightening of external financing conditions, as well as risks related to policy implementation delays. Should these risks materialize, they would adversely impact output growth and fiscal revenue. To mitigate these risks, it is important to strengthen fiscal policy, identify potential sources of domestic and foreign financing, and address financial sector vulnerabilities.
The SMP provided a useful anchor for Zimbabwe’s economy in an election year; however, the electoral process and the transition to a new government affected the pace and scope of implementation of the policies and reforms under the program. The new government has reiterated its commitment to the SMP and is working towards achieving the program objectives.
The authorities and the mission made progress in discussions towards an understanding on a package of policy measures and reforms to be monitored in the context of the SMP through June 2014. Discussions on these policies and reforms will continue on the sidelines of the annual IMF and World Bank Spring Meetings in early April; and the authorities remain committed to work on the outstanding deliverables under the program with the goal of completing the review of the SMP. Consideration of the Article IV Staff Report by the IMF Executive Board is scheduled for mid-June 2014, when the mission team will also update the Board on the implementation of policies under the SMP.
The IMF is committed to supporting the Zimbabwean authorities’ efforts to implement stronger macroeconomic policies, including through targeted technical assistance and capacity building activities. In order to enhance its interactions with Zimbabwe, the IMF intends to place a Resident Representative in Harare in the coming months.
1 An SMP is an informal agreement between country authorities and Fund staff , whereby the latter agree to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.