core sector communique

Statement of the IMF’s Mission to Zimbabwe

November 8, 2010

A staff team of the International Monetary Fund (IMF), led by Vitaliy Kramarenko, visited Harare during October 25-November 3, 2010 to discuss recent economic development and the economic outlook and policies. IMF staff met with Finance Minister Biti, Economic Planning and Investment Promotion Minister Mashakada, Energy and Power Development Minister Mangoma, Reserve Bank of Zimbabwe (RBZ) Governor Gono, and other senior officials, as well as representatives of the financial, business, and diplomatic communities. The mission would like to thank the authorities for their excellent cooperation and warm hospitality.

At the conclusion of the mission’s work, Mr. Kramarenko made the following statement:

"Supported by renewed efforts to strengthen policies and favorable shocks, the Zimbabwe economy is completing its second year of buoyant economic growth after a decade of economic decline. The budget is projected to generate a cash surplus in 2010, governance at the Reserve Bank of Zimbabwe (RBZ) is improving, and the government is working toward strengthening the business climate. Regarding favorable shocks, higher gold and platinum prices boosted exports and government revenues, a significant appreciation of the rand has eased competitiveness pressures, and favorable weather conditions have contributed to higher agricultural output.

"To sustain the economic recovery, spread its benefits to a larger share of the population, and reduce significant external and financial vulnerabilities, it is important to build consensus on a strong medium-term agenda focused on prudent macroeconomic policies and a comprehensive package of structural reform. Political stability is also key to consolidating gains in macroeconomic performance.

"Reorienting budget expenditures to infrastructure and social needs would solidify the recovery and improve living conditions of ordinary Zimbabweans. The mission recommends containing cash budget expenditure to about US$2.5 billion in 2011. Under the current IMF World Economic Outlook assumptions for commodity prices, it is projected that the budget will be broadly balanced in 2011. To create fiscal space for higher capital expenditure and social programs, it would be critically important to start eliminating ghost civil servants. As commodity prices are high at present, transforming part of the accumulated government deposits in the domestic banking system into international reserves would create a cushion against future possible shocks.

"Risks in the banking system have eased since early 2010. Strict supervisory vigilance and early intervention in case of non-compliance with prudential rules remain the authorities’ only tools to contain solvency and liquidity risks in the system. In that context, strengthened liquidity requirements would make the banking system more resilient to shocks. Recent efforts to downsize and restructure the RBZ are welcome. In the interest of financial stability, banks’ statutory reserves should be given preferred status in the resolution of RBZ liabilities.

"Fully unlocking Zimbabwe’s growth potential would require significant progress in structural reforms. Priority areas include: reducing labor market rigidities, establishing security of land tenure, clarifying ownership requirements under the indigenization legislation, and addressing concerns about governance in the diamond sector.

"The IMF staff will remain engaged with the Zimbabwe authorities on key economic policy issues and continue to provide targeted technical assistance. Zimbabwe is in debt distress. To move toward a staff monitored program, which is a stepping stone to IMF lending and debt relief, the authorities will need to improve data reporting, further strengthen macroeconomic policies, and continue to garner the support of the international community."