Zimbabwe must step up reform agenda, says IMF

ZIMBABWE should step up its reform agenda in order to quicken economic growth and normalise relations with the international community and multilateral lenders, the International Monetary Fund says.

The country is considered has a high sovereign risk owing to its failure to settle arrears with international financial institutions like the World Bank, African Development Bank and European Investment Bank.

An IMF team, which recently concluded its Article IV Consultation on Zimbabwe, said the country should push for reforms despite receiving nearly US$961 million worth of Special Drawing Rights (SDR) from the multilateral lender.  

An IMF staff team, led by Dhaneshwar Ghura, mission chief for Zimbabwe, held virtual discussions in the context of the 2021 Article IV Consultation from 25 October to 16 November 2021.

"The mission notes the authorities' plans to use the recent SDR allocation to support spending in social, productive, and infrastructure sectors, as well as building reserve buffers. In this context, the use of the SDR allocation should not substitute for critical reforms, be spent on priority areas within a medium-term plan, and follow good governance and transparency practices," the IMF said in its report.

"Decisive actions are needed to lock in economic stabilisation gains and accelerate reforms. The near-term macro-economic imperative is to continue with the close coordination among fiscal, exchange rate, and monetary policies. In this context, key priorities relate to allowing greater official exchange rate flexibility and tackling FX (foreign exchange) market distortions, accompanied by an appropriate monetary stance; creating fiscal space for critical spending while containing fiscal deficits; implementing growth-enhancing structural and governance reforms; and continuing to enhance data transparency."

Official figures show that as at December 2020, Zimbabwe's total public and publicly guaranteed (PPG) debt stood at US$10.7 billion. This represented 72.6% of the country's gross domestic product. PPG external debt owed to the multilateral creditors, as at the end of December 2020, amounted to US$2.68 billion, of which US$1.53 billion was owed to the World Bank Group, US$729 million to AfDB, US$356 million to the European Investment Bank and US$68 million to other multilateral creditors.

"These reforms are paramount for improving the business climate and reducing governance vulnerabilities, and thus to foster higher sustained and inclusive growth. To this end, the authorities' strategy and policies as embodied in their 2021-25 National Development Strategy 1 are appropriate and need to be fully operationalised and implemented. Durable macroeconomic stability and structural reforms would support the recovery and Zimbabwe's development objectives," the IMF said.

"Zimbabwe has been a Fund member in good standing since it cleared its outstanding arrears to the PRGT (Poverty Reduction  and Growth Trust) in late 2016. The Fund engages the authorities in close policy dialogue and provides extensive technical assistance in the areas of economic governance, fiscal policy and revenue administration, financial sector reforms, as well as macro-economic statistics. However, the IMF is precluded from providing financial support to Zimbabwe due to an unsustainable debt and official external arrears. A Fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe's external debt, including the clearance of arrears and obtaining financing assurances from creditors; a reform plan that is consistent with macroeconomic stability, sustainable growth, and poverty reduction; a reinforcement of the social safety net; and governance and transparency reforms. In a bid to reengage with the international community, the authorities have developed an Arrears Clearance, Debt Relief and Restructuring strategy and have resumed token payments on external arrears."