IMF: Zimbabwe Economy Hit by Weak Exports and Commodity Price Shocks

The post-hyperinflation rebound of Zimbabwe has ended with GDP growth decelerating from 10.5% in 2012 to 4.5% in 2013, due to adverse weather conditions, weak demand for key exports and election-year uncertainty, the International Monetary Fund has said.

"Zimbabwe's economy is at a crossroads," an IMF press release said.

IMF said the outlook in 2014 is for continued low growth of 3%. Annual inflation dipped below zero recently, but stood at 0.1% in September 2014.

"The external position is precarious, with low international reserves, a large current account deficit, an overvalued real exchange rate and growing external arrears."

The Fund said that Zimbabwe's credit and deposit growth has slowed down sharply, liquidity conditions are tight and the banking system remains weak. Fiscal pressures arose in early 2014 due to higher-than-budgeted wage increases and revenue shortfalls as the economy weakened.

However, the implementation of a package of revenue and expenditure measures enabled the authorities to comfortably meet fiscal targets for the first half of 2014.

Continued Support

The Staff-Monitored Program (SMP) of the Fund aims at laying the foundations for comprehensive reforms required for sustaining higher growth and poverty reduction, the IMF said.

"The main objective of the new programme is to strengthen the country's external position, as a prerequisite for arrears clearance, resumption of debt service and restored access to external financing."

The SMP will run from October 2014 to December 2015.

IMF said Zimbabwe will strive to consolidate the fiscal position, eliminating the primary budget deficit by end-2015. The country will also aim to accumulate international reserves and seek to mobilise international support for resolving the external debt situation.

"The authorities intend to restore confidence in the financial sector, as well as improve public debt and financial management. Finally, the authorities plan to make progress in a number of key structural reform areas in order to enhance the business climate, boost productivity and competitiveness, and build confidence."

IMF said the successful implementation of these reforms will demonstrate that the country can implement the policies that could justify a Fund-financed programme.

Risks

IMF said the key risks to the new programme stem from global commodity price shocks, domestic policy slippages, gaps in policy implementation capacity and lagging progress in resolving external arrears.

"While Zimbabwe faces these risks with practically no buffers, the successor SMP aims to rebuild these buffers and strengthen the country's resilience to shocks," the Fund said.

Strong macroeconomic policies and debt relief, in the context of a comprehensive arrears clearance strategy supported by development partners, will be essential to address Zimbabwe's developmental needs, the IMF said.