An International Monetary Fund (IMF) staff team conducted a mission to Harare from 1 to 15 December 2022, in the context of the 2023 Article IV Consultation.
At the conclusion of the IMF mission, the staff team leader, Dhaneshwar Ghura issued the following statement:
The government provided a swift response to the COVID-19 pandemic, supporting businesses, livelihoods, and the health sector, resulting in real output growth of 8.5 percent in 2021, underscoring the economy’s resilience.
Renewed domestic and external shocks (inflation surge, erratic rainfall, electricity shortages, and Russia’s war in Ukraine) are, however, adversely affecting economic and social conditions.
Real GDP growth is thus expected to decline to about 3.5 percent in 2022. These multiple shocks will continue to weigh on Zimbabwe’s growth prospects.
Currency and price pressures, which emerged earlier this year largely owing to a spike in broad money growth and an official exchange rate misaligned with market fundamentals, are subsiding.
Annual inflation, which had increased to 285 percent in August 2022, has been decelerating since, a trend which if sustained by appropriate policies, would go a long way in anchoring inflation expectations.
The IMF mission notes the authorities’ efforts to stabilize the local foreign exchange market and lower inflation.
In this regard, the swift tightening of monetary policy along with greater official exchange rate flexibility and a prudent fiscal stance are policies in the right direction and have contributed to a narrowing of the premia in the parallel foreign exchange market.
In addition, the authorities have identified large payments to suppliers, the result of over-invoicing, as a source of pressure on the parallel market and in response have launched value-for-money audits and introduced measures to strengthen procurement regulations.
Uncertainty remains high, however, and the economic outlook will depend on the implementation of key policies and the evolution of external shocks.
A near-term policy imperative is to sustainably anchor macroeconomic stability.
In this context, Fund staff recommend accelerating the liberalization of the FX market, including through the removal of restrictions on the exchange rate at which banks, authorized dealers, and businesses transact; addressing the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures; maintaining an appropriately tight monetary policy stance to durably restore macroeconomic stability and ensure social stability; restoring the effectiveness of the monetary policy, including through the use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins; and maintaining a prudent fiscal stance.
Fiscal policy should aim at containing the deficit in line with available non-inflationary financing and creating fiscal space for critical spending.
This can be achieved by mobilizing additional revenues, based on tax policy reforms, and by scaling back non-priority outlays while strengthening public finance management.
The financial oversight of the state-owned enterprise (SOEs) by the Treasury should be further strengthened in order to minimize fiscal risks.
In the context of a tight monetary policy, enhanced regulatory oversight is required to ensure financial sector resilience.
Addressing the remaining Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) weaknesses would strengthen banks’ resilience and effectiveness.
Reforms to economic institutions and the governance and anti-corruption frameworks are critical for strengthening the foundations for private sector development and inclusive growth.
“Ensuring durable macroeconomic stability and revitalizing structural reforms would support Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025).
International re-engagement remains critical for debt resolution and access to external financial support.
In a bid to advance the re-engagement process, the authorities have adopted an Arrears Clearance, Debt Relief and Restructuring strategy; continued token payments to external creditors; and launched a Dialogue Platform to foster discussions among the various stakeholders.
Zimbabwe has been a Fund member in good standing since it cleared its outstanding arrears to the IMF in late 2016.
The Fund provides extensive technical assistance in the areas of revenue mobilization, expenditure control, monetary and exchange rate policy, banking sector, debt management, governance, and macroeconomic statistics.
However, the IMF is precluded from providing financial support to Zimbabwe due to official external arrears and unsustainable debt.
A Fund financial arrangement would require a clear path to a comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; and a reform plan that is consistent with durably restoring macroeconomic stability, enhancing inclusive growth, lowering poverty, and strengthening economic governance.
The IMF staff held meetings with Minister of Finance and Economic Development Honorable Professor Mthuli Ncube, his Permanent Secretary Mr. George Guvamatanga, Reserve Bank of Zimbabwe Governor Dr. John Mangudya, Deputy Chief Secretary to the President and Cabinet Mr. Willard Manungo, other senior government and RBZ officials, representatives of the private sector, civil society, and Zimbabwe’s development partners.
The IMF staff would like to thank the Zimbabwean authorities and other stakeholders for constructive discussions and support during the 2023 Article IV consultation mission.