HARARE – The International Monetary Fund (IMF) says Zimbabwe’s economic difficulties have deepened with conditions constrained by tight liquidity and negative inflation.
IMF mission chief for Zimbabwe Domenico Fanizza, in a statement on the 2016 Article IV consultation with Zimbabwe and the third review under the Staff Monitored Programme, said government needed to take bold reforms to avoid economic difficulties in the medium-to-long-term.
“Zimbabwe’s economic difficulties have deepened … Unless the country takes bold reforms, the economic difficulties will continue in the medium-term.
“Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction,” Fanizza said.
The IMF official also said there was need for government to step up structural reforms to raise potential growth and living standards, and to secure support from Zimbabwe’s development partners.
“IMF directors highlighted the need to implement the Indigenisation Policy in a business-friendly and transparent manner, and to resolve outstanding land issues swiftly.
“Other priorities include; improving the investment climate, tackling corruption, and promoting economic diversification,” he said.
This comes as the IMF on Monday announced that economic growth in sub-Saharan Africa will likely slow this year to its weakest in nearly two decades, hurt by a slump in commodity prices, the Ebola-virus outbreak and drought.
In its African Economic Outlook, the fund said the region would likely grow three percent this year — the lowest rate since 1999 — after expanding by 3,4 percent in 2015.
Fanizza in March also slashed Zimbabwe’s economic growth projection from Finance minister Patrick Chinamasa’s 2,7 percent to 1,4 percent after the World Bank also shaved the projection to 1,5 percent.
However, Fanizza commended government for managing to — despite adverse economic conditions — reduce the national fiscal deficit in both 2014 and 2015.
“They have started to rationalise public expenditures by implementing recommendations from the 2015 civil service audit.
“They are also amending the Public Financial Management and Procurement Acts. The Reserve Bank of Zimbabwe (RBZ) has taken measures to restore confidence in the financial sector. All banks in operations now have capital buffers above the minimum requirements,” Fanizza said.
Presently, drought, erratic rains, and increasing temperatures, have reduced agricultural output and disrupted hydropower production and water supplies, worsening the economic conditions.
“Economic activity is severely constrained by tight liquidity conditions resulting from limited external inflows and lower commodity prices.
“Inflation remains in negative territory, because of the appreciating US dollar — the country’s main currency — and lower commodity prices. Zimbabwe remains in debt distress and the level of international reserves is low,” the IMF official said.
Zimbabwe met its commitments under the IMF-supervised SMP that ended at end-December 2015, despite economic and financial difficulties.
Fanizza said the Bretton Woods Institution had also noted the country’s relatively high tax-to-GDP ratio, and considered it appropriate to focus efforts on base-broadening, increasing non-tax revenue from mineral resources, improving the efficiency of VAT collections, and enhancing tax administration.