IMF team to jet in for SMP review

A TEAM of International Monetary Fund (IMF) officials will arrive in Zimbabwe in the next two weeks for the first review of the Staff-Monitored Programme (SMP), which runs until March next year.

The SMP is an informal arrangement between the government and the IMF to monitor the implementation of key economic programmes it the country.

The review comes at a time when the economic crisis is deepening, characterised by a debilitating liquidity crunch, cash and foreign currency shortages, runaway inflation, low productivity and crippling power shortages, among other problems.

IMF representative to Zimbabwe Patrick Imam told businessdigest on Tuesday that the team from the Washington DC-headquartered Bretton Woods institution, which will be in the country from the September 14 to 18, will assess progress made on the SMP for the period between May and June 2019.

"The team will evaluate whether the commitments set by the government for end of June were met. While I cannot prejudge the outcome of these findings, it seems to me that the economic reforms are broadly on track and have continued against a very difficult economic and political background. But let's wait for the outcome of the mission," he said.

Imam said the team will also revise downwards the projected annual GDP growth rate as a result of a number of factors which include the drought and the prolonged power outages.

"The team will also update the economic forecasts. While I do not want to prejudge the findings of the mission, it is clear, compared to the projections of the original SMP, which did not foresee the severity of the drought and its secondary impact, nor the electricity shock, that growth is almost certainly going to be revised downwards and inflation upwards compared to the original SMP forecasts," Imam said. "The original 2019 budget has already been superseded by the supplementary budget that was voted on a few weeks ago, so the review mission will have to recalibrate government spending forecast for year-end accordingly."

He said as a result of the drought, preliminary estimates suggest that agriculture may contract by 15 percentage points compared to 2018.
"Making economic predictions in the current economic environment is very difficult, as the situation is so fluid.

However, it's fair to say that the economic outcomes are less favourable than anticipated in the Staff-Monitored Programme when it started in May 2019, this is partly because of the severe weather shock that hit the economy. It is the worst drought in a generation and this had a direct negative effect on the agricultural sector," Imam said.

"In addition, you have the indirect effect of the drought on hydro-power generation. With electricity production dipping, all the productive sectors of the economy have been hampered; in particular export pillars like mining, but also manufacturing, for instance, and even tourism. Besides impacting growth, this drought also led to a steep increase in domestic prices, though the primary driver of that was, of course, the rapid currency depreciation we observed late in 2018 and in the past few months."

He pointed out that other factors that increased domestic prices include the gradual reduction of fuel, electricity and other subsidies.

In his mid-term fiscal review earlier this month, Finance minister Mthuli Ncube revealed that the country's GDP growth will be even less than the -2% projected under the SMP.