07-08-17 by Spotlight Zimbabwe

IMF 2017 Article IV Consultation with Zimbabwe

July 7, 2017

On July 5, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Zimbabwe.


Zimbabwe’s economy is facing difficulties. A severe drought and slow reform momentum have led to high expenditure levels since late 2015 despite subdued revenues. With limited access to foreign inflows, the ensuing fiscal imbalances have become unsustainable, and are being financed by rising domestic borrowing. The expansionary fiscal stance, curtailed net capital flows, and declining investor confidence have resulted in cash shortages. In response the government has introduced capital and current account controls and quasi-currency instruments in the dollarized economy. An overvalued real exchange rate is hurting external competitiveness.

Budgetary operations are crowding out the private sector, and the expenditure profile tilted towards employment costs and unsustainable agricultural support is inhibiting investments in other priority sectors, particularly infrastructure and social outlays. On the financial side, credit to the private sector remains subdued, and some domestic banks face increasing risks emanating from fiscal imbalances.

Some progress on advancing structural reforms, notably to improve the business climate, has been made. However, progress on implementation of laws applicable to non-indigenous investors, improvements in the functioning of state-owned enterprises, and upgrades in public financial management, governance and accountability remain limited.

The envisaged reengagement with the international community is facing delays. The Zimbabwean government has settled all overdue obligations to the PRGT. However, it is yet to reach agreement with the World Bank and other multilateral institutions on the settlement of arrears, and undertake reforms that would facilitate resolution of arrears with bilateral creditors.

Growth this year is expected to be supported by a strong performance in agriculture mainly due to exceptional rains. However, economic activity in the medium term is projected to remain subdued, pending adjustment and reform that tackle the structural challenges and enable the economy to restore fiscal and external sustainability and achieve its growth potential.

Executive Board Assessment [2]

Directors stressed the urgency of fiscal consolidation to restore policy credibility and economic stability. They noted that public sector employment costs remain at an unsustainable level, constraining social and infrastructure spending. Directors encouraged the authorities to engage only in well‑targeted, cost effective, and properly budgeted support to the agricultural and other productive sectors. They noted the potential to enhance tax revenues, and highlighted the need to strengthen public financial management and reform state‑owned enterprises.

Directors stressed the need to contain broader, adverse spillovers from the fiscal imbalances. The ongoing deficit financing modalities, particularly the credit from the central bank, are unsustainable and have significant potential for generating inflationary pressures. The marked increase in public debt is crowding out private sector activity, aggravating liquidity shortages, and exacerbating debt distress. The dollar scarcity has led to administrative controls on current and capital account transactions. Directors noted that unless adjustment and reforms are forthcoming, these conditions would further undermine economic performance and weaken confidence.

Directors underscored the need to restore credibility of the currency regime and safeguard the financial sector. Even as private sector credit growth remains subdued, bank asset concentration on non‑liquid central bank deposits and treasury bills has increased financial sector fragility. The extensive use of quasi‑currency instruments exacerbates this fragility. Directors encouraged a proactive approach to managing these risks, including by bolstering the regulatory and supervisory framework, and closing loopholes in the AML/CFT framework. Directors also encouraged the authorities to roll back exchange controls.

Directors stressed the urgency of structural reforms and the need to create a conducive environment for private-sector‑led growth. They welcomed efforts to improve the business climate, but called for comprehensive actions to provide a level playing field for investors through consistent and transparent implementation of laws, and measures to combat corruption.

Directors welcomed Zimbabwe’s clearance of arrears to the IMF and encouraged an early resolution of arrears to other IFIs and bilateral creditors. Determined reform implementation and reengagement with the international community are key to unlocking external financing, fostering investment, and resolving the debt overhang. Directors cautioned against clearing arrears using modalities which exacerbate debt problems. They emphasized that Zimbabwe needs the support of the international community to achieve sustainability.


Table 1. Zimbabwe: Selected Economic Indicators, 2013–16
2013 2014 2015 2016
Real GDP Growth (annual percentage change) 5.3 2.8 1.4 0.7
Nominal GDP (US$ millions) 15,224 15,834 16,072 16,124
GDP deflator (annual percentage change) 2.9 1.2 0.1 -0.3
Inflation (annual percentage change)
Consumer price index (annual average) 1.6 -0.2 -2.4 -1.6
Consumer price index (end-of-period) 0.3 -0.8 -2.5 -0.9
Central government (percent of GDP)
Revenue and grants 24.6 23.8 23.3 21.7
Expenditure and net lending 26.7 25.4 25.9 30.8
Overall balance (cash basis) -1.9 -0.9 -2.4 -8.8
Money and credit (US$ millions)
Broad money (M3) 3,888 4,377 4,736 5,638
Net foreign assets -730 -693 -628 -556
Net domestic assets 5,100 5,367 5,611 6,292
Money and credit (annual percentage change)
Domestic credit (net) 6.2 4.2 8.8 19.8
Of which : Credit to the private sector 3.7 4.7 -2.3 -3.6
Balance of payments (US$ millions)
Current account balance -2,375 -2,395 -1,495 -662
(percent of GDP) -15.6 -15.1 -9.3 -4.1
Official reserves (end-of-period)
Gross international reserves (US$ millions) 284 303 339 310
(months of imports of goods and services) 0.4 0.5 0.6 0.6
Debt (end-of-period)
Domestic debt (US$ millions) 479 1,764 2,281 4,006
(percent of GDP) 3.1 11.1 14.2 24.8
PPG external debt (US$ millions) 5,389 6,407 6,613 7,231
(percent of GDP) 35.4 40.5 41.1 44.8
Sources: Zimbabwean authorities and IMF staff estimates.


[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .

IMF Communications Department

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