Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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IMF report on Zimbabwe

IMF report on Zimbabwe

October 26, 2012 in Opinion

ON September 21, 2012, the Executive Board of the International Monetary 
Fund (IMF) concluded Article IV consultation with Zimbabwe. Find below an 
abridged summary of its findings.

AFTER a prolonged period of economic and political crisis, Zimbabwe’s 
economic stabilisation and recovery began with the end of hyperinflation in 
2009, supported by the formation of a coalition government, a favourable 
external environment, the adoption of a multicurrency system and cash 
budgeting, and the discontinuation of quasi-fiscal activities by the Reserve 
Bank of Zimbabwe (RBZ).

The economic rebound is moderating following a period of robust growth, with 
real gross domestic product (GDP) growth averaging 9,5% during 2010–11, 
sustained by strong external demand for key mineral exports and continued 
recovery in domestic demand. Real GDP growth in 2012 is projected to slow to 
5%, reflecting the impact of adverse weather conditions on agriculture, 
erratic electricity supply, and tight liquidity conditions.

Mining production is expected to benefit from the lifting of restrictions on 
diamond exports from the Marange fields as a result of certification by the 
Kimberley process. Inflation slowed to 4% in June 2012 from 4,9% in December 
2011, reflecting in part some moderation in imported goods inflation.

The external position remained precarious, albeit with some recent 
moderation in the current account deficit. Despite higher exports, the 
current account deficit widened to 36% of GDP in 2011 (from 29% of GDP in 
2010), due in part to a spike in imports associated with some one-off 

The deficit was financed by debt-related flows, arrears, and a drawdown of 
special drawing rights (SDR) holdings, as uncertainties regarding policy 
implementation continued to affect foreign investment flows. Usable 
international reserves remained very low at 0,3 months of imports at 
end-2011, amplifying the country’s vulnerability to shocks.

The current account deficit is projected to narrow to 20,5% of GDP in 2012, 
as the 2011 import spike is reversed and exports continue to expand. 
Zimbabwe remains in debt distress with total external debt estimated at 
US$10,7 billion (113,5% of GDP) at end-2011, of which 67% of GDP are in 

The large debt overhang remains a serious impediment to medium-term fiscal 
and external sustainability.

The public finances came under pressure in 2011 and early-2012.
Despite better-than-expected revenue performance, central government 
operations recorded a cash deficit of 0,6% of GDP in 2011 and domestic 
arrears accumulation of about 1% of GDP, due mainly to two salary increases 
that raised employment costs by 22%, crowding out social and capital 
investment. The effect of the salary hikes was compounded in early-2012 by 
an increase in employee allowances and unbudgeted recruitment.

Fiscal pressures were exacerbated by significant underperformance of diamond 
revenues during the first half of 2012. In response to the fiscal slippages, 
in July the government announced expenditure and revenue measures, as well 
as a reassessment of diamond revenue flows. The measures include a hiring 
freeze, suspension of a number of diamond-revenue-financed projects, 
increases in excises on fuel, and enhanced monitoring of the mineral 

The financial regulatory framework is being enhanced after a long period of 
forbearance, but financial system vulnerabilities persist.

The banking system is recovering from a recent liquidity crunch, following a 
period of rapid credit growth funded by unstable short-term deposits, but 
liquidity remains relatively low and unequally distributed across banks.

The RBZ raised the prudential liquidity ratio from 25% to 30% by end-June 
2012. Some banks, particularly the small ones, show weak capitalisation, 
insufficient liquidity, and low asset quality, reflecting unsound lending 
practices and poor risk management. The situation of three troubled banks 
came to a head in mid-2012, with the RBZ placing one in recuperative 
curatorship and two surrendering their licenses.

In August 2012, the RBZ announced steep increases in the minimum capital 
requirements to be phased over a two-year period.
The medium-term outlook, under an unchanged policy scenario, is for growth 
to moderate to average some 4%, although constraints on energy supply and 
weak competitiveness may pose a challenge to achieving these rates.

Foreign investment is likely to be hampered by a poor business climate, 
uncertainties over the implementation of the indigenisation policy and 
political instability, while domestic investors may face difficulties 
accessing long-term credit. A vigorous programme of structural reform and 
strengthened macroeconomic management would allow the country to sustain 
higher rates of growth.

Executive Board Assessment
Executive directors welcomed Zimbabwe’s economic recovery and stabilisation 
in recent years. Progress has however been uneven, and the impact of adverse 
weather conditions on agriculture, an uncertain political situation ahead of 
elections, and a difficult global environment pose further risks to the 

To achieve sustained and inclusive growth, directors stressed the importance 
of full commitment to policies focusing on strengthening fiscal management, 
reducing financial sector vulnerabilities, and improving the business 

Directors urged the authorities to fully implement the measures announced in 
the mid-year fiscal policy review, and take additional measures if 
necessary, to address earlier slippages and close the financing gap. They 
underscored the need to rebalance the expenditure mix, especially by 
containing growth of the wage bill, to create the fiscal space needed for 
increased social spending and public investment. Improving public financial 
management would help reinforce expenditure control.

Directors emphasised that enhancing transparency in the diamond sector, 
including timely finalisation and implementation of the Diamond Act, is key 
to strengthening revenues and reducing fiscal pressures. They noted that a 
prudent medium-term fiscal framework remains critical for restoring fiscal 

Directors welcomed actions taken to strengthen the financial regulatory 
framework and address systemic liquidity. Noting recent bank failures and 
persistent vulnerabilities in the banking system, they called for more 
proactive banking supervision and enforcement of prudential regulations, 
focusing on banks with low liquidity buffers and high risk exposures.


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