The International Monetary Fund (IMF) has commended Zimbabwe’s recovery progress, but has however warned on the large external current account deficit and increased credit as well as liquidity risks in the banking system.
During its recent visit to the country, the IMF mission stated that Zimbabwe’s economy has begun to recover in 2009, albeit from a low base.
The mission further noted that since early 2009, the government has broadly adhered to cash budgeting, achieved a significant improvement in budget revenue, established a multi-currency system, and largely liberalised prices and the exchange system, saying as a result of these improved policies, real GDP is projected to grow by about 3 percent.
The IMF also noted that the credit expansion, led by post-hyperinflation remonetisation and capital inflows, is supporting economic activity.
“The key challenge going forward is to build the necessary support for policies that would ensure sustainability of the nascent economic recovery and improvements in living conditions for Zimbabweans,” the mission, which recently ended its visit to Harare said in statement released this week.
The IMF’s Vitaliy Kramarenko said that specifically for Zimbabwe to maintain the progress, political consensus needs to be forged for continuing cash budgeting, exercising wage restraint while reorienting expenditures to developmental needs and priority social programmes.
The fund also noted that resolving the Reserve Bank of Zimbabwe governance problems and restructuring its balance sheet would be key, while also the government should enforce the property rights, and maintain the rule of law.
“In light of Zimbabwe’s debt overhang and low-income status, the mission advises the authorities to seek sustained concessional donor financing in support of their medium-term growth and poverty reduction objectives rather than relying on non-concessional SDR-related funds,” the mission said in a statement, further adding that the SDR allocation only provided an important one-off boost to Zimbabwe’s depleted international reserves, and should be saved.
The IMF staff has been on regular visits to Zimbabwe as part of the Fund’s agreement for a continued provision of policy advice and targeted technical assistance. The Fund has also said access by Zimbabwe to IMF lending facilities would require a sustained track record of sound policies and donor support for the clearance of arrears to official creditors.