THE International Monetary Fund (IMF) has painted a grim
picture of the prevailing economic situation in Zimbabwe which is exacerbated
by extreme weather conditions, weakening confidence and policy uncertainty as
year-on-year inflation rate rises to over 300%.
The Washington DC-based Bretton Woods institution also
predicted severe GDP growth decline in 2019, mainly as a result of the effects
of drought, Cyclone Idai floods and lack of confidence in the country’s
financial sector.
IMF officials were in the country last week for the first
review of the Staff-Monitored Programme (SMP) from September 14 to 18.
In a statement released yesterday, the team’s head of
mission, Gene Leon, was critical of government’s disastrous fiscal
consolidation measures which have resulted in a volatile exchange rate and
hyperinflation. The IMF has recommended that urgent policy interventions be
taken to address the crisis.
“Economic difficulties have continued throughout 2019. GDP
growth in 2019 is expected to be steeply negative as the effects of drought on
agricultural production and electricity generation, impact of Cyclone Idai, and
the significant fiscal consolidation to correct past excesses serve to drag on
growth,” Leon said in the statement.
“Social conditions have deteriorated sharply, with more
than half of Zimbabwe’s population (8,5 million people) estimated by the UN to
be food insecure in 2019/2020.
Weakening confidence, policy uncertainty, a continuation of
FX market distortions, and a recent expansionary monetary stance has increased
pressure on the
exchange rate. Since the February currency reform, the
exchange rate has depreciated from USD 1:1 ZWL to USD 1:16.5 ZWL (as of
September 23), fostering high inflation, which reached almost 300 percent
(year-over-year) in August,” the report reads.
The IMF said urgent measures should be taken to address the
situation.
“Policy actions are urgently needed to tackle the root
causes of economic instability and enable private sector-led growth. The key
challenge is to contain fiscal spending consistent with non-inflationary
financing and tighten monetary policy to stabilise the exchange rate and start
rebuilding confidence in the national currency,” Leon said.
“Risks to budget execution are high as demands for further
public sector wage increases, quasi-fiscal activities of the RBZ that will need
to be absorbed by the central government, and pressure to finance agriculture
could push the deficit back into an unsustainable stance. There is also a need
to strengthen FX (forex) market operations and improve transparency on monetary
statistics.
“These adjustment challenges are magnified by slow progress
on international reengagement. Efforts will need to be intensified on both
economic and political fronts to drive Zimbabwe forward.”
Leon said the IMF staff and government had agreed to
maintain dialogue on economic policies to restore economic stability while
accommodating spending to alleviate food insecurity and protect vulnerable
groups.
He said dialogue would continue during the IMF and World
Bank annual meetings, taking place from October 14-20, 2019.
The institution however noted government’s commitment to
implement much-needed reforms “to restore stability, strengthen social
protection, meaningfully improve transparency, improve FX policies and the
monetary policy framework, and lay the foundations for a sustainable
job-creating growth path”.
The SMP is an informal arrangement between the government
and the IMF to monitor the implementation of key economic programmes in the
country.
It is designed to support the government’s reform agenda.
It will be monitored on a quarterly basis, and is intended to assist
authorities in building a track record of implementation of a coherent set of
economic and social policies that can facilitate a return to macroeconomic
stability and help government’s international re-engagement effort.The IMF team
assessed progress made on the SMP for the period between May and June 2019.
Economic policies under the SMP emphasise the restoration
of macroeconomic and financial sector stability through: implementing a large
fiscal adjustment, elimination of central bank financing of the fiscal deficit,
and adoption of reforms to allow the effective functioning of market-based
foreign exchange and debt markets.
Structural reforms include steps to reform and privatise
state-owned enterprises, enhance governance, including in procurement and
revenue administration, and improving the business environment. The SMP also
includes important safeguards to protect the country’s most vulnerable people.
Zimbabwe Independent
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