THE International Monetary Fund (IMF) has projected Zimbabwe’s real GDP growth rate to decline to about 3.5% in 2022, owing to internal and external shocks, electricity shortages and Russia’s invasion of Ukraine.
In November, Finance minister Mthuli Ncube announced a 4% economic growth rate, downgraded from the 4.6% he had projected in the mid-year budget. The GDP growth of the Sadc region is projected to decelerate to 2.5% in 2022, from a recovery of 4.2% recorded in 2021, according to the IMF.
These multiple shocks would continue to weigh on Zimbabwe’s growth prospects, according to an IMF staff delegation led by Dhaneshwar Ghura, which was in Zimbabwe from December 1-15 conducting an Article IV mission.
“Currency and price pressures, which emerged earlier this year largely owing to a spike in broad money growth and an official exchange rate misaligned with market fundamentals, are subsiding,” read the statement. The IMF team said with economic uncertainty remaining high, the economic outlook will largely depend on the implementation of key policies and the evolution of external shocks.
“A near-term policy imperative is to sustainably anchor macro-economic stability. In this context, fund staff recommend accelerating the liberalisation of the FX [foreign exchange] market, including through the removal of restrictions on the exchange rate at which banks, authorised dealers, and businesses transact,” reads the IMF statement.
The IMF also recommended that the central bank’s direct fiscal policy should contain the deficit in line with available non-inflationary financing, and creating fiscal space for critical spending. “This can be achieved by mobilising additional revenues, based on tax policy reforms, and by scaling back non-priority outlays, while strengthening public finance management.
“The financial oversight of the state-owned enterprise (SOEs) by the Treasury should be further strengthened in order to minimise fiscal risks. In the context of a tight monetary policy, enhanced regulatory oversight is required to ensure financial sector resilience,” reads the statement.
As part of recommendations, IMF urged Treasury to strengthen financial oversight of the state-owned enterprises (SOEs) to minimise fiscal risks. “Addressing the remaining Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) weaknesses would strengthen banks’ resilience and effectiveness.
“Reforms to economic institutions and the governance and anti-corruption frameworks are critical for strengthening the foundations for private sector development and inclusive growth. “Ensuring durable macro-economic stability and revitalising structural reforms would sup port Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025),” reads the statement.
With Zimbabwe wallowing in debt distress, the IMF said international re-engagement remains critical for debt resolution, and access to external financial support.
The IMF has been prohibited from providing financial support to Zimbabwe due to official external arrears and unsustainable debt. In a bid to advance the re-engagement process, the authorities have adopted an Arrears Clearance, Debt Relief and Restructuring Strategy; continued token payments to external creditors; and launched a dialogue platform to foster discussions among the various stakeholders.
The IMF however says the financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; and a reform plan that is consistent with durably restoring macro-economic stability, enhancing inclusive growth, lowering poverty, and strengthening economic governance.
On inflation, the IMF commended the central bank for the swift tightening of monetary policy along with exchange rate flexibility and a fiscal stance that has seen a deceleration of the exchange rate.
“In this regard, the swift tightening of monetary policy along with greater official exchange rate flexibility and a prudent fiscal stance are policies in the right direction and have contributed to a narrowing of the premia in the parallel foreign exchange market. “In addition, the authorities have identified large payments to suppliers, the result of over-invoicing, as a source of pressures on the parallel market and in response have launched value-for-money audits and introduced measures to strengthen procurement regulations,” read the statement.