Zimbabwe urged to limit spending and engage with lenders as economy worsens

10 Mar 16

Zimbabwe needs to “act now” to counter economic difficulties, with fiscal belt-tightening and reengagement with the international financial community key priorities, the International Monetary Fund has warned.


Domenico Fanizza, head of the fund’s mission to Zimbabwe, said economic problems have “deepened”, with the El Niño-induced drought, lower commodity prices and the appreciation of the US dollar hitting the economy hard.

“Policy action is needed to reverse this trend,” Fanizza said, noting that a comprehensive and ambitious economic transformation programme will be necessary to revive the economy and cement support among international partners.

Given the lack of resources, he stressed that fiscal discipline is a major priority and urged Zimbabwe’s government need to keep its accounts close to balance.

This also “heightens the urgency of reengagement with the international community”, he continued. “The objective is to unlock financing that could allow Zimbabwe to deal with adverse shocks and plan for much needed social capital and outlays.”

However he added this alone “will not be sufficient” and welcomed the government’s plan to shift resources into infrastructure and social investment by reigning in employment costs.

Following the IMF review, the Zimbabwe government announced plans to cut its wage bill to 52% of government spending by 2019, down from 82%, but did not outline how this would be achieved.

In the financial sector, the government should work to further remove risks with active supervision, reductions in non-performing loans and efforts to deliver on financial inclusion as outlined in the country’s national financial inclusion strategy.

Improving the business environment is also key, Fanizza said. In particular, the government’s indigenisation scheme, under which foreign companies must transfer half of their shares to local entities or individuals, needs to be consistently and transparently implemented to attract investors.

Fanizza also welcomed plans to clear Zimbabwe’s $1.8bn in outstanding arrears to international financial institutions, which it said will be an important step to normalising the country’s relationships with the international community and in unlocking potential IMF financial support.

It will also reduce the country’s risk premium and unlock affordable financing for the government from the private sector, he added.

“This, together with policy reform, will help achieve sustained economic development through economic transformation, to improve living conditions for the people of Zimbabwe, and to reduce poverty.”

Fanizza was speaking following a visit from the fund’s mission to Zimbabwe as part of a 15 month monitoring programme approved in October 2014.

Zimbabwe has been suspended from IMF support since 2004, after it began defaulting on its debts to the IMF, World Bank, African Development Bank and other lenders.

In 2009, the southern African country was forced to dollarise as inflation climbed towards 80 billion per cent.

Around the same time, deep recession slashed the country’s gross domestic product by nearly half, exacerbating poverty and unemployment and driving hundreds of thousands of Zimbabweans abroad in search of work and better wages.

More recently, the country’s worst drought since 1992 has prompted president Robert Mugabe to appeal for $1.5bn in aid from local businesses and charities as farmers’ crops fail and livestock perishes. At the time, a quarter of the country’s population were in need of food.

Nevertheless, Mugabe was able to throw himself a lavish 92nd birthday party last month, racking up a bill of $800,000. 

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